Billionaire Bill Ackman Has 25% of His Hedge Fund in 2 Brilliant AI Stocks (Hint: Not Nvidia)

Billionaire Bill Ackman is the founder of Pershing Square Capital Management, one of the 20 most profitable hedge funds in history as measured by net gains, according to LCH Investments. That makes him an excellent source of inspiration.

As of December, Pershing Square had 25% of its portfolio invested in two artificial intelligence (AI) stocks: 14% in Amazon (NASDAQ: AMZN) and 11% in Meta Platforms (NASDAQ: META). That screams high conviction.

Here's what investors should know.

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Amazon: 14% of Bill Ackman's hedge fund

Bill Ackman's investment thesis for Amazon centers on its strong presence in e-commerce and cloud services. The company runs the largest online marketplace in North America and Western Europe, and Amazon Web Services (AWS) is the largest public cloud in terms of infrastructure and platform services spending. Amazon is using artificial intelligence (AI) to drive revenue growth and improve profitability.

Amazon has developed hundreds of generative AI applications to make its retail operations more efficient, including tools that optimize inventory placement, workforce management, and robot navigation. Ackman thinks those innovations, coupled with strong growth in advertising revenue, could drive "significant margin expansion." Indeed, excluding one-time charges, Amazon's operating margin rose 1.5 percentage points in the fourth quarter.

Meanwhile, AWS has added dozens of AI products and services, including custom chips (a business where sales are increasing at a triple-digit pace), developer tools, and AI agents for coding, observability, and security. Ackman thinks those innovations not only extend but also potentially accelerate AWS sales growth. Indeed, cloud revenue increased 24% in the fourth quarter, the fastest growth in 13 quarters.

Amazon shares are currently 16% below their high, partly because investors are concerned about how much money the company is investing in artificial intelligence. But Morgan Stanley analysts believe that spending is justified because Amazon is likely to be one of the biggest beneficiaries of physical AI (i.e., autonomous robots).

Wall Street estimates Amazon's earnings will increase at 19% annually in the next three years. That makes the current valuation of 28 times earnings look attractive. Indeed, among 72 analysts, Amazon has a median target price of $285 per share. That implies 37% upside from its current share price of $208.

Meta Platforms: 11% of Bill Ackman's hedge fund

Ackman's investment thesis for Meta Platforms centers on its status as the second-largest adtech company in the world. Several popular social media networks are grouped under the Meta umbrella, including Facebook and Instagram, and those web properties generate insights about consumer preferences that support precise ad targeting.

Ackman calls Meta an "essential platform for businesses seeking to maximize their return on ad spend," and he views the company as a clear winner in AI innovation. Meta has designed custom AI chips and models that work together to personalize the user experience. Those innovations are driving deeper engagement and better outcomes for advertisers.

"The optimizations we made in Q4 drove a 7% lift in views of organic feed and video posts on Facebook, resulting in the largest quarterly revenue impact from Facebook product launches in the past two years," said CFO Susan Li. "The average price per ad increased 6% year over year, benefiting from increased advertiser demand, largely driven by improved ad performance."

Importantly, while the advertising business will remain the biggest growth driver in the near term, Meta sees an opportunity to integrate superintelligence into smart glasses in the long term. Meta already dominates the burgeoning smart glasses market (accounting for more than 70% of sales), and sales are forecast to grow at 60% annually through 2029, according to Counterpoint Research.

Wall Street estimates Meta's earnings will grow at 22% annually during the next three years. That makes the current valuation of 26 times earnings look very attractive. Indeed, among 73 analysts, Meta Platforms has a median target price of $855 per share. That implies 41% upside from the current share price of $606.

Trevor Jennewine has positions in Amazon. The Motley Fool has positions in and recommends Amazon and Meta Platforms. The Motley Fool has a disclosure policy.