Billionaire Bill Ackman Owns 8 Stocks -- and This Hypergrowth Artificial Intelligence (AI) Stock Isn't One of Them

Bill Ackman and his hedge fund, Pershing Square Capital (PSHZ.F -0.01%), are notable investors. Thanks to his frequent appearances on popular financial news networks and his coverage in other publications, the billionaire is a well-recognized investor. But some may be surprised to hear that his hedge fund only owns eight stocks -- and only seven companies.

Pershing Square Capital's current holdings look like this.

Data source: Whale Wisdom. Note: Percentages do not add up to 100% due to rounding.

Some investors might cringe at his portfolio's lack of diversification, but Ackman's strategy has worked out over the long term. Additionally, some might question its lack of artificial intelligence (AI) exposure, especially since he doesn't own Nvidia (NVDA -0.16%).

The only real AI exposure in his portfolio is Alphabet (GOOG -1.05%) (GOOGL -1.09%), which is still mainly an advertising firm right now.

So, why don't Ackman and Pershing Square Capital own Nvidia?

Nvidia doesn't fit with Ackman's No. 1 rule

Any assessment of Ackman's style will clearly show he's a value investor, following the footsteps of perhaps the most famous investor of all time: Warren Buffett. His top qualification for determining whether he should buy a stock is if the business is "simple and predictable."

Any investor following Ackman's No. 1 rule would therefore refrain from buying most AI-related stocks, including Nvidia. However, Nvidia is fairly simple at its core. Its primary products, graphics processing units (GPUs), are computation hardware that can perform large volumes of calculations in parallel. This makes GPUs extremely well suited to handle computationally arduous tasks like displaying the complex and rapidly changing graphics of modern video games -- and training and running the latest generative AI models. At the end of the day, Nvidia's business model is simple: Sell more GPUs.

Unfortunately for investors, the company's sales arc is far from predictable. Before the generative AI arms race that triggered Nvidia's latest sales boom, Nvidia was reeling from the crash of the cryptocurrency market. Its GPUs can also be used to mine Bitcoin and a few dozen other proof-of-work coins, so when the crypto winter hit in 2021, that source of demand dried up.

Chipmaking is a cyclical business, and demand for Nvidia's products will fall from time to time. This will include the demand for the types of GPUs that are currently being used to power AI models. Eventually, enough infrastructure will have been built that Nvidia won't need to produce quite as many GPUs. But when this will happen is anyone's guess, which makes the business unpredictable.

However, that's about the only rule of Ackman's that Nvidia breaks.

Ackman's other preferences

On his checklist for potential investments, Ackman lists other factors. Among them, he likes companies that are dominant in their space, operate in businesses with high barriers to entry, produce high capital returns, and have excellent management. Those are all characteristics Nvidia displays, so why doesn't Ackman own its shares?

Because Ackman doesn't break his No. 1 rule. While an investor may at times bend a few of their other investing rules, one should never stray from the core principle of their portfolio. Ackman understands his investing style and he has done well with it, so for him, venturing into growth investing wouldn't be wise.

In sum, the reason why Ackman and Pershing Square do not own Nvidia is because it doesn't fit their style.