Bill Ackman is one of the world's preeminent investors. He runs a very concentrated portfolio of just a handful of stocks, so when he makes moves, investors tend to pay attention.
In Q1, Ackman's Pershing Square Management (PS 2.27%) fund took a huge new stake in Microsoft (MSFT 3.32%) while increasing its position in Amazon (AMZN 3.24%) by 19%. To help fund these new purchases, Ackman sold 95% of his stake in fellow cloud computing giant Alphabet (GOOGL 0.10%) (GOOG 0.08%).
Ackman had been trimming the fund's stake in Alphabet over the past few quarters. He initially started building this position in Q1 2023. Despite dumping most of the fund's shares, Ackman praised Alphabet, saying he is very bullish on the stock long term. However, he found Microsoft more attractive at current valuations.
Image source: The Motley Fool.
I am a huge fan of Alphabet and would not be dumping the stock, as it looks poised to be one of the biggest long-term AI winners. With the most complete artificial intelligence (AI) stack of any company, owning its own world-class AI model and chips, this is a stock to hang on to, in my opinion.
That said, let's take a look at why Ackman bought Microsoft and increased his stake in Amazon, and if investors should follow suit.
Microsoft: A cloud computing and software giant
In a post on X (formerly Twitter), Ackman laid out the reasons why Pershing Square took a large position in Microsoft. He noted that the company operates two highly valuable businesses in Microsoft 365 and its cloud computing unit, Azure. It also owns a 27% stake in OpenAI, as well as stakes in other leading businesses, including LinkedIn and its video game platform.
The hedge fund manager believes the market is overly concerned with the threat of AI to its software-as-a-service (SaaS) business, given that Microsoft 365 is so ingrained in enterprise workflows. He sees the company's continued Copilot rollout and shift to a hybrid seat-and-consumption model as potential growth drivers. Meanwhile, he believes Azure's massive capital expenditures should lead to strong revenue growth in the coming years.
NASDAQ: MSFT
Key Data Points
Ackman's logic for adding Microsoft is solid. I generally think the entire SaaS stock sell-off is misplaced and that software companies, like Microsoft, that are tightly tied to customer workflows and/or data will be AI beneficiaries, not AI losers. It doesn't make a lot of sense for organizations to risk disrupting their businesses and try to bypass traditional software companies with homegrown AI solutions to save a few bucks.
At the same time, Azure has just been a growth machine, and its stake in OpenAI and continued partnership are highly valuable. As such, I think Microsoft is a solid option for investors to buy down at these levels.
Amazon: The e-commerce and cloud leader
Ackman started investing in Amazon last April and increased the fund's stake in the company this past quarter, making it his second-largest position behind alternative investment manager Brookfield. Like Microsoft, Ackman noted in Pershing Square's annual letter in February that the company has two leading franchises with its e-commerce operations and its Amazon Web Services (AWS) cloud computing unit. He noted both businesses have dominant market positions with "decades-long secular growth trends behind them."
NASDAQ: AMZN
Key Data Points
The billionaire praised Amazon's e-commerce operations, saying he expects the business to continue to produce double-digit revenue growth while significantly expanding its margins. He noted how automation and its logistics network were helping drive down per-unit shipping costs and how the company was using AI to improve the customer experience. Meanwhile, he expects the company's large data center infrastructure investments to deliver strong returns for AWS.
Amazon is one of my favorite stocks at the moment, and I think its investment case has gotten even stronger, given the strides it's seen in its chip business. This gives it a cost advantage over others in the space, including Microsoft, and its Graviton central processing units (CPUs) suddenly look like an important differentiator with the rise of agentic AI. Meanwhile, the company is seeing significant operating efficiency gains in its e-commerce operations from investments in robotics and AI, which I think often gets underappreciated.
Even after a rebound, I think Amazon stock looks attractive at current levels.
