This Famous Investor Just Sold All Of His Alphabet Stock and Loaded Up On Microsoft Stock. Should You?

Bill Ackman -- the billionaire investor and CEO of hedge fund Pershing Square -- made two big disclosures on X (formerly Twitter) last week. On Friday, May 15, he revealed that Pershing Square had quietly built a 5.65 million-share position in Microsoft (NASDAQ: MSFT) during the first quarter. The next day, he confirmed that the firm had funded the new bet by fully exiting its multi-year long investment in Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL) -- Google's parent company.

Naturally, the move turned heads. Alphabet has been one of the market's clearest artificial intelligence (AI) winners this year, with shares climbing roughly 23% year to date and even hitting all-time highs at one point in mid-May. The Windows maker, meanwhile, is down about 14% year to date as of this writing, trading far below its 52-week high of more than $555.

Ackman insists the trade isn't a bet against Google.

"To be clear, our sale of $GOOG was not a bet against the company," he wrote on X. "We are very bullish long term on Alphabet. But at current valuations and in light of our finite capital base, we used $GOOG as a source of funds for $MSFT."

So, what's actually going on here? And should everyday investors mirror the trade?

Image source: Getty Images.

Inside Ackman's Microsoft bet

According to Ackman's comments on X, the firm started accumulating Microsoft shares in February -- right after the software giant's fiscal second-quarter report triggered a sharp sell-off over softer Azure growth and a planned ramp in AI spending. Ackman said the firm built the position at about 21 times forward earnings.

Additionally, Ackman argued that Microsoft 365 -- the company's productivity suite -- is "tightly integrated into the daily workflow of nearly every large enterprise" and tough to dislodge. He is also leaning hard on what he sees as the market's underappreciation of Microsoft's roughly 27% economic interest in ChatGPT-maker OpenAI, a position he pegs at about $200 billion -- or roughly 7% of Microsoft's total market capitalization.

And the underlying business is notably performing exceptionally well. Microsoft's fiscal third quarter (the period ended March 31, 2026) delivered Azure growth of 39% in constant currency, closing in on a 40% year-over-year growth rate after a brief dip to 38% the prior quarter. Total revenue rose 18% year over year to $82.9 billion, and the company's commercial backlog ended the quarter at $627 billion. Microsoft also said the annualized run rate of its AI business hit $37 billion, up 123% from a year earlier.

Why I think it's the wrong move

The catch is that Microsoft's cloud rivals are seeing even more significant accelerations in their year-over-year growth rates.

First, consider Alphabet. In the first quarter of 2026, Google Cloud's revenue surged 63% year over year to $20 billion, while its backlog nearly doubled sequentially to more than $460 billion. This was a huge jump from 48% growth in the prior quarter.

"Cloud accelerated again this quarter due to strong demand for our AI products and infrastructure," Alphabet CEO Sundar Pichai said during the company's first-quarter earnings call.

Then there's Amazon's AWS, which grew 28% year over year in Q1 -- its fastest pace in 15 quarters, and a significant step-up from 24% growth in the prior quarter.

Microsoft's Azure growth, by contrast, has held roughly steady in the high-30s range for several quarters now.

There's also an awkward shift in Microsoft's relationship with OpenAI. In late April, the company revised its partnership terms, ending OpenAI's exclusivity with Azure and ending Microsoft's revenue-share payments to OpenAI, while OpenAI's revenue-share payments to Microsoft continue through 2030, subject to a cap. Any cloud provider can now serve OpenAI's models. That doesn't unwind the equity stake Ackman highlighted, but it does chip away at part of the moat Microsoft had built around AI workloads.

Layered on top of all this is the broader concern that has hung over software stocks this year -- the worry that AI tools could eventually disintermediate traditional enterprise software, including parts of Microsoft 365. Ackman thinks that fear is overdone. And he may be right. But it's a real risk, and it complicates the bull case at a time when Microsoft is committing to roughly $190 billion of capital expenditures in 2026 -- a 61% jump from 2025.

Yes, Microsoft looks reasonably priced. But Alphabet -- with Google Cloud growing much faster than Azure's pace and search revenue reaccelerating to 19% growth in the first quarter -- may simply offer a better risk-reward today.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.