- GOOG
- NVDA
Bill Ackman, the billionaire founder of the hedge fund Pershing Square Capital Management, was a busy man during the second quarter. He and his team made some notable moves. For instance, the firm surprisingly closed its position in Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL). Why is this a surprise?
Alphabet has been performing extremely well in recent quarters, posting accelerating sales growth within its cloud computing segment, which is currently its most important growth driver.
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Perhaps Ackman decided to quit while he was ahead, or maybe there were other reasons for the decision. But it’s also interesting that the billionaire hedge fund manager doubled down on some major tech companies that have moved south over the past year, including Microsoft(NASDAQ:MSFT) and Meta Platforms (NASDAQ:META). Was this a good move?
1. Microsoft
Microsoft’s shares have declined by 3% over the past 12 months. Investors worried about significant investments in the company’s artificial intelligence (AI)-related ambitions. Many also feared that the very AI Microsoft is investing in could threaten the business, as AI applications could replace many of its services. However, the tech leader is proving the bears wrong. In the fourth quarter of its fiscal year 2026, which ended on June 30, Microsoft posted revenue of $90 billion, up 18% year over year.
The company’s adjusted earnings per share rose 23% year over year to $4.74. What drove this strong performance? You guessed it, Microsoft’s cloud computing business. And AI-powered tools and applications were a meaningful part of that. As the company noted, it has more than 100,000 customers who use Foundry, a platform that helps enterprises build, deploy, and manage domain-specific AI applications and agents.
According to management, revenue from Foundry more than doubled year over year during its latest quarter. This points to an important phenomenon: Microsoft isn’t being replaced by AI. It is improving its services with AI, and its clients are buying what it sells. Meanwhile, the company still has plenty of runway for growth, even beyond the $678 billion in cloud backlog it recorded during its fourth quarter, which grew 84% year over year.
Microsoft is a leader in cloud computing, a market with massive remaining white space. It boasts a wide moat thanks to switching costs and the deep relationships it has built with enterprises over the past few decades, and it generates ample cash flow that will enable it to innovate and stay ahead of the ongoing AI revolution. For all those reasons, the stock is a buy. I’d follow Ackman’s lead on this one.
