Bill Ackman Built a $2.4 Billion Stake in Microsoft, Calling It a "Core Holding" Bought at a "Highly Compelling Valuation." Here's Why He's Betting Big on Big Tech.

Earlier this year, Pershing Square (NYSE: PS) founder and CEO Bill Ackman piled into a stock well-known not only to tech investors, but the general public at large: Microsoft (NASDAQ: MSFT).

This demonstrates the famous investor's bullish outlook on the tech sector, as four slots in the company's limited equity portfolio are held by prominent tech names (or at least heavily tech-slanted, in the case of rideshare king Uber Technologies). Here's why Ackman and his team are so drawn to the sector these days.

Pershing Square's Bill Ackman. Image source: Getty Images.

A macro buy of Microsoft

Pershing Square's Microsoft move became public knowledge in May, and like most of the company's buy-ins, it was a doozy. The company bought more than 5.65 million shares, worth nearly $2.1 billion as of the end of March.

Subsequently, shifting its tech allocation, Pershing Square sold its relatively small holding in Google parent Alphabet to load up on a bit more Microsoft. This brought the company's holding in the Windows maker to slightly over 6.2 million shares as of the end of June, worth $2.3 billion.

Leaning into tech has been a key plank in Pershing Square's investment strategy of late. The quartet of sector stocks the company held at the end of last year -- Alphabet, Uber, Meta Platforms, and Amazon -- accounted for 40% of the portfolio in dollar terms.

Ackman's letter to shareholders covering Pershing Square's inaugural quarter as a publicly traded company explained the reasons. He took pains to note that in the first half of this year, two of the 24 industry groups comprising S&P 500 index components were responsible for 85% of the index's year-to-date gains -- semiconductors and IT hardware, foundational members of the broad tech sector.

Squaring with the strategy

In that letter, Ackman also enumerated Pershing Square's core investment principles. The company is always on the lookout for stocks that "are simple, predictable, and free cash flow-generative, with strong competitive positions, minimal financial leverage and capital markets dependency, and are run by excellent management teams."

While I'm not convinced all of that applies to every one of the four tech holdings, I'd say the better large companies in the sector tick each box, Microsoft included.

So is Ackman's current faith in tech justified? I would say so.

After all, the artificial intelligence (AI) revolution, despite its fits and starts, continues to intensify and looks basically unstoppable (despite the recent gloomy pronouncements of several high-profile developers). Also, the ever-increasing utility of tech solutions for all manner of users, from the individual to the most influential global company, will keep customer demand high.

And, at the center of it all will be the tried, tested, and tenacious U.S. tech industry. Barring some catastrophic meltdown, then, I'd expect habitual buy-and-holder Pershing Square to keep a tight grip on its current sector holdings for a while, perhaps adding one or a few names in coming quarters. Ackman and company are basically tech-heads these days.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.