Bill Ackman and his hedge fund, Pershing Square Capital (OTC: PSHZ.F), are notable investors. Thanks to his frequent appearances on popular financial news networks and coverage in other publications, the billionaire is a well-known investor. But some might be surprised to learn that his hedge fund owns only eight stocks – and only seven companies.
Pershing Square Capital’s current holdings look like this.
|
Business |
Portfolio percentage |
|---|---|
|
Chipotle Mexican Grill |
18.3% |
|
International restaurant brands |
17.6% |
|
Hilton Hotels |
16.2% |
|
Howard Hughes Holding |
15.1% |
|
Alphabet (class C shares) |
12.8% |
|
Canadian Pacific Kansas City |
11.5% |
|
Alphabet (class A shares) |
5.9% |
|
Lowes |
2.7% |
Data source: Wisdom of Whales. 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 over the long term. Additionally, some might question its lack of exposure to artificial intelligence (AI)especially since he does not have Nvidia (NASDAQ:NVDA).
The only real exposure to AI in its portfolio is Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL)which is still primarily an advertising agency at present.
So why don’t Ackman and Pershing Square Capital own Nvidia?
Nvidia does not match Ackman’s rule #1
Any assessment of Ackman’s style will clearly show that he is a value investor, following in the footsteps of perhaps the most famous investor of all time: Warren Buffett. His main qualification for determining whether to buy a stock is whether the company is “simple and predictable.”
Any investor following Ackman’s Rule #1 would therefore refrain from buying most AI-related stocks, including Nvidia. However, Nvidia is quite simple in its essence. Its main products, graphics processing units (GPUs), are computer hardware capable of performing large volumes of calculations in parallel. This makes GPUs extremely well suited to handling arduous computational tasks, such as displaying the complex and changing graphics of modern video games, as well as training and running the latest generative AI models. Ultimately, Nvidia’s business model is simple: sell more GPUs.
Unfortunately for investors, the company’s sales performance is far from predictable. Before the generative AI arms race that sparked Nvidia’s latest sales boom, Nvidia was reeling from the cryptocurrency market crash. 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, this source of demand dried up.
Chip manufacturing is a cyclical business and demand for Nvidia products will decline from time to time. This will include demand for the types of GPUs currently used to power AI models. Eventually, enough infrastructure will have been built that Nvidia will no longer need to produce as many GPUs. But no one can guess when this will happen, which makes the activity unpredictable.
However, that’s pretty much the only Ackman rule that Nvidia breaks.
