Bill Ackman and his hedge fund Pershing Square Capital (OTC: PSHZ.F), is a notable investor. This billionaire is a well-known investor thanks to his frequent appearances on popular financial news networks and features in other publications. But you might be surprised to learn that his hedge fund owns just eight stocks and seven companies.
Pershing Square Capital's current holdings are as follows:
|
company |
Portfolio percentage |
|---|---|
|
Chipotle Mexican Grill |
18.3% |
|
restaurant brand international |
17.6% |
|
hilton hotel |
16.2% |
|
howard hughes holding |
15.1% |
|
alphabet (C class stock) |
12.8% |
|
Kansas City, Canadian Pacific |
11.5% |
|
alphabet (Class A stock) |
5.9% |
|
lowe's |
2.7% |
Data source: Whale Wisdom. Note: Due to rounding, percentages do not add up to 100%.
Although some investors may be put off by the lack of diversification in his portfolio, Ackman's strategy has worked well in the long run. Additionally, some may question his lack of exposure to artificial intelligence (AI), especially since he doesn't own it. Nvidia (NASDAQ:NVDA).
The only real exposure to AI in his portfolio is alphabet (NASDAQ:GOOG) (NASDAQ:Google)is still primarily an advertising company.
So why don't Ackman and Pershing Square Capital own Nvidia?
Nvidia doesn't meet Ackman's first rule
If you evaluate Mr. Ackman's style, it's clear that he is a value investor, following in the footsteps of perhaps the most famous investor of all time, Warren Buffett. The first criterion for determining whether he should buy his stock is whether the business is “simple and predictable.”
Therefore, investors who follow Ackman's first principles will avoid buying most AI stocks, including Nvidia. However, Nvidia's core is very simple. The company's flagship product, the Graphics Processing Unit (GPU), is computational hardware that can perform large amounts of calculations in parallel. This makes GPUs well-suited for processing computationally difficult tasks, such as displaying complex, rapidly changing graphics in modern video games or training and running modern generative AI models. After all, Nvidia's business model is simple. It's about selling more GPUs.
Unfortunately for investors, the company's sales have fallen far short of expectations. Before the generative AI arms race that sparked Nvidia's recent sales boom, the company was reeling from the collapse of the cryptocurrency market. Its GPUs can also be used to mine Bitcoin and dozens of other proof-of-work coins, so when the crypto winter hit in 2021, that source of demand dried up.
Chip manufacturing is a cyclical business, and demand for Nvidia products declines from time to time. This includes demand for the types of GPUs currently used to power AI models. Eventually, enough infrastructure will be built that Nvidia won't need to produce as many GPUs. But business is unpredictable because no one knows when that will happen.
However, this is the only Ackman rule that Nvidia breaks.
Ackman's other preferences
Ackman lists other factors on his checklist for potential investments. Among them, he favors companies that are dominant in their fields, operate businesses with high barriers to entry, generate high returns on capital, and are well-managed. These are all characteristics his Nvidia exhibits, so why doesn't Ackman own stock in his company?
Because Ackman doesn't break the first rule. Investors may sometimes bend some other investment rules, but they should never stray from the core principles of a portfolio. Mr. Ackman knows his investment style and is doing well with it. Therefore, it would be unwise for him to take the plunge into growth investing.
In summary, the reason Ackman and Pershing Square don't own Nvidia is because it doesn't suit their style.
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Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Keithen Drury holds a position at Alphabet. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman Owns 8 Stocks — And This Hypergrowth Artificial Intelligence (AI) Stock Isn't One of them Original article published by The Motley Fool
