Billionaire Bill Ackman Sold Alphabet and Bought the Dip in This Magnificent Artificial Intelligence (AI) Stock Instead

The first-quarter Form 13F that Bill Ackman's Pershing Square Capital Management filed recently revealed a notable portfolio shift that has attracted some attention from retail and institutional investors alike. The billionaire activist investor sold nearly all of his fund's $1.9 billion or so stake in Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) and redirected the proceeds into a new position in Microsoft (NASDAQ: MSFT).

This move reflected Ackman's investment philosophy -- patient ownership of high-quality compounders bought at reasonable prices, followed by decisive profit-taking when better risk-reward setups form elsewhere.

Image source: The Motley Fool.

When did Pershing Square invest in Alphabet?

Pershing Square initiated its position in Alphabet in early 2023, acquiring 2.2 million Class A shares and 8.1 million Class C shares. Back then, Alphabet traded between $90 and $100 per share. At the time, the stock appeared undervalued relative to its dominant position in search, its budding cloud business, and its emerging capabilities in artificial intelligence (AI).

Pershing Square's Alphabet stake eventually grew into one of its largest holdings. Ackman held onto the position through Alphabet's AI-driven rally, watching shares more than triple as the company's advertising engine remained resilient and its investments in YouTube, Google Cloud, and generative AI began to bear fruit.

GOOGL data by YCharts.

During the second half of 2025, Pershing Square modestly trimmed its stake as Alphabet witnessed substantial valuation expansion. During the first quarter of 2026, Ackman reduced his fund's exposure to Alphabet by 95% across both share classes.

Ackman took to social media to explain that the Alphabet sale was not a bearish call on the company's long-term prospects. In fact, he remains bullish on Alphabet's competitive moat. The exit merely represented a classic demonstration of prudent portfolio management.

After years of strong performance and a significant run-up, Alphabet stock no longer offered the same margin of safety it once did. With limited dry powder available, Ackman chose to take gains off the table and redeploy funds into what he views as a superior setup in Microsoft.

Ackman bought the dip in Microsoft

The Microsoft opportunity crystallized in early 2026. Shortly after the company delivered its fiscal 2026 second-quarter results in late January, the stock dropped sharply as investors became concerned about a modest slowdown in Azure cloud revenue growth and the company's surging capital expenditure plans tied to AI infrastructure.

The starkness of that sell-off -- more than 18% over the course of a few sessions -- gave the impression that investors feared that Microsoft's heavy spending on data centers and its partnership with OpenAI might not deliver returns fast enough to offset ongoing margin and cash-flow pressures.

While these concerns were valid, Ackman likely viewed the market's reaction as overly pessimistic. Per his post on X (formerly Twitter), Ackman began accumulating Microsoft stock in February -- ultimately building a core position of roughly 5.6 million shares.

At the time, Microsoft was trading at forward price-to-earnings (P/E) multiples between 20 and 23 -- meaningfully below the levels it traded at previously during the AI revolution.

MSFT PE Ratio (Forward) data by YCharts.

Ackman's decision to buy the dip made strategic sense for several reasons. Microsoft's AI initiatives, particularly Copilot productivity tools and the Azure cloud infrastructure layer, position the company to capture monetization from generative AI at scale across both consumer and enterprise workflows.

By allocating capital at a normalized valuation into a blue chip business with durable competitive advantages, Pershing Square essentially secured a position in one of the world's premier big tech franchises at a rare discount.

Is Microsoft stock still a buy?

As of this writing (May 19), Microsoft stock has started to rebound from its 2026 low points. Nevertheless, shares are still down roughly 23% from the all-time high they touched late last year.

In my view, the company's valuation remains reasonable relative to its expected earnings growth. Meanwhile, the average 12-month price target among sell-side analysts covering Microsoft stock is $560 -- about 34% higher than current trading levels.

Although Microsoft stock is not the screaming bargain it was back in February, I think it still qualifies as a compelling compounder trading at a price that will reward patient investors over a long time horizon.

Adam Spatacco has positions in Alphabet and Microsoft. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.