Billionaire Bill Ackman Sold This Stock While Warren Buffett Successor Greg Abel Bought It. Who's Right?

Bill Ackman is one of the most followed investment managers in the market today, and for good reason. His Pershing Square Holdings fund has produced annualized returns of 14.9% from its founding in 2004 through 2025 based on its stock price, handily beating the S&P 500 in that time.

Meanwhile, Greg Abel is better known for his managerial acumen than for his investing chops. Nonetheless, he's now in charge of Berkshire Hathaway's (NYSE: BRKA) (NYSE: BRKB) massive $330 billion equity portfolio (with an extra $380 billion in cash on the sidelines).

The two found themselves on opposite sides of a trade last quarter. While Abel was adding to Berkshire's position in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Ackman was selling the shares he'd held since 2023. Ackman completed selling all of Pershing Square's Alphabet shares in April; meanwhile, the stock is suddenly Berkshire's fifth-largest position, representing a significant bet from Abel.

Which investment manager should readers follow?

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The full-stack artificial intelligence company

Alphabet has long been a leading innovator in artificial intelligence (AI), and it now finds itself in a position where it's monetizing those efforts across multiple layers of the AI value chain.

Its Google Cloud business rents compute capacity to developers, providing access to AI services that enable developers to build on top of foundation large language models. It sells access to popular AI accelerator chips, including its own Tensor Processing Units (TPUs) and central processing units (CPUs). Alphabet has even started selling its TPUs to third-party data centers.

It also develops the Gemini family of models, which are among the most performant on the market. It's seen strong adoption, including a contract with Apple to use Gemini as the foundation for its revamped Siri, expected to launch this year.

The third level of the stack is its own products. Alphabet has integrated generative artificial intelligence into Search, Chrome, and its ad platform, resulting in very strong financial results. Management says its AI Overview product has led to significant increases in engagement while maintaining the same level of monetization. Its AI models are also better at understanding search intent, improving ad targeting.

Alphabet's success across all three is evident in its financial results. Google Cloud revenue growth accelerated to 63% last quarter, and its operating margin expanded to 33%. As a result, the segment's total operating income tripled. That said, it's still dwarfed by its core advertising business. Despite its massive size, Search revenue growth continues to accelerate, up 19% in the most recent quarter. That's driven by the product improvements noted above and continued improvements in the underlying AI models.

Of course, all of this comes with quite a cost. Management expects to spend up to $190 billion this year, $5 billion more than its previous guidance. But the results are proving so strong that the market is willing to accept that from Alphabet, whereas it's sold off other hyperscalers with big budgets.

As a result, shares currently trade for 27 times forward earnings expectations. That's well above the levels the stock traded for during the first quarter when Abel was buying and Ackman was selling. Indeed, the valuation appears to be the biggest sticking point for Ackman.

Where Ackman sees better value

Most likely, Ackman still thinks Alphabet is an incredible business with tremendous growth potential. But with the stock price rising, he sees better opportunities elsewhere. In particular, he thinks Microsoft (NASDAQ: MSFT) stock presents even better expected returns at its current share price. He used the funds from selling Alphabet to establish a new position in Microsoft last quarter.

To be sure, Microsoft trades at a lower valuation than Alphabet. Investors can pick up shares for about 25 times forward earnings expectations. Ackman's expectations may be different from the Wall Street consensus, making Microsoft look even more attractive to him. It's worth noting Microsoft stock traded for a higher forward P/E relative to Alphabet based on consensus estimates for the entire first quarter.

Microsoft is also seeing very strong growth for its two main business segments: cloud computing and software. Its Azure cloud computing platform saw revenue climb 40% last quarter, and it could have been higher, but Microsoft withheld some compute capacity for its own AI efforts. Meanwhile, its Microsoft 365 productivity suite saw revenue climb 19% for its commercial product and 33% for its consumer product. Overall, earnings per share climbed 21% year over year for the quarter.

Despite the strong results, Microsoft shares have been beaten down over fears of its capital spending plans. Management's most recent update is that it plans to spend $190 billion on capital expenditures during calendar year 2026, with a notable acceleration in the second half of the year. The market balked at that announcement, sending shares lower, but Ackman saw that as an opportunity to buy a company accelerating spending with high return on invested capital.

While Microsoft is a very strong business trading at an attractive valuation, Alphabet looks to hold even more upside in my opinion, thanks to its leading AI models, AI accelerators, and its ability to monetize those products directly and via its Google Cloud Platform and advertising platforms. Both may be worth owning, but if I had to pick one, I'd pick Alphabet.

Adam Levy has positions in Alphabet, Apple, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Apple, Berkshire Hathaway, and Microsoft. The Motley Fool has a disclosure policy.