Bill Ackman has some grand ambitions as he looks to kick off his big Pershing Square IPOs while looking to build an entity that’s more like Berkshire Hathaway (NYSE:BRK.B | BRK.B Price Prediction). Going down the closed-ended route seems like the way to go as Ackman looks to follow in the footsteps of an absolute legend. With Warren Buffett retiring at the start of the year, maybe some investors might be willing to look to put some of their capital with another star investor.
While Buffett is still involved, it’s Greg Abel who’s the boss at Berkshire. And while the man isn’t a star stock picker, he does have the operating chops as well as training from the Oracle of Omaha himself. Either way, Bill Ackman’s intriguing, concentrated investment style might resonate with a lot of investors who are looking to do better than the markets over the long run.
While Ackman’s track record speaks for itself (it’s a good one, especially when you consider his ability to be agile when markets enter a bloodbath), I do think that the ultimate test for whether you should participate in the coming Pershing Square IPO is to ask yourself if you’re a fan of the current portfolio.
Undoubtedly, Amazon (NASDAQ:AMZN) and Meta Platforms (NASDAQ:META) comprise a sizeable chunk of the Ackman portfolio. In fact, Ackman placed fairly sizeable bets just last quarter. And while the Mag Seven stocks have slid of late, I do think that sticking by them for the long run could prove wise, especially since the group still has powerful structural tailwinds at their back as they progress through what could be one of the more challenging and costly stages of the AI buildout. But which Mag Seven darling has more upside from these levels? Let’s find out.
Amazon
If you’re starting to get impatient with shares of Amazon, you’re definitely not alone. With shares gaining a mere 37% in the past five years, I wouldn’t fault you for throwing in the towel, especially if you’re not too sanguine on the state of the consumer.
While the stock hasn’t done much, perhaps other than exhibit far more volatility than the broad market (that 1.42 beta is quite hefty), it’s worth keeping tabs on the multiple. Shares are going for 29.5 times trailing price-to-earnings (P/E). For Mag Seven standards, that’s not all too remarkable.
But for Amazon standards, that’s historically cheap. Amazon is spending furiously to advance its AI efforts. And while the big question surrounds the ability to achieve some sort of satisfactory AI ROI, I’m more inclined to give Amazon and its managers the benefit of the doubt. Why? Some of the lowest-hanging fruit that AI could pick seems to be over at Amazon. Remember that Amazon got into the data center game to serve others after it had served itself.
It monetized the extra, and when it comes to the AI data center buildout, I expect a similar game plan. For Amazon, there’s no shortage of opportunities to unlock AI ROI. From coding and warehouse automation to autonomous vehicles and delivery to personal assistants (Alexa+) and driving Amazon sales (Rufus), the company has all the right ingredients in place to make its massive AI bets worth the while, even if it takes other firms a while longer to adopt the technology and drive next-level growth at AWS.
Perhaps it’s no mystery why Ackman bought up so many shares in the back half of last year.
Meta Platforms
Meta Platforms is another big Ackman bet that the man finds “deeply discounted.” Going on P/E alone, and he looks to be spot on. At writing, shares go for 26.6 times trailing P/E. And while the last few sessions have been turbulent, thanks in part to news of potential AI delays, rumours of 20% job cuts, I think, could be a huge needle-mover for the stock. Indeed, that would represent billions in savings as the firm looks to lean out in areas that aren’t heavy with AI.
In many ways, I think Meta is following the right AI monetization game plan. If it can make use of its own AI, it might not take too long for others to follow. With early signs of AI uplift in that last quarter (though not what most expected), perhaps Meta is the better (and cheaper) bet of the two recent Ackman buys. Though, I wouldn’t be against buying both amid the Mag Seven slump, as Ackman has.
In terms of potential upside, I think Meta has more room for a melt-up, especially since the Street-high target is north of $1,100 per share, which implies a 76% gain from here. Do I think such a price target is realistic? I do. In fact, I view the Street-high target as the most realistic, given the opportunity at hand and how rough the AI spending hangover has been for the stock.
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