Bill Ackman's Pershing Square made Microsoft its top AI stock.
It sold all Alphabet shares and trimmed Amazon.
Microsoft's free cash flow strength and Azure growth drove the switch.
What happened
Pershing Square Capital Management, led by Bill Ackman, sold its entire Alphabet stake and trimmed Amazon by 25% (2.9 million shares) in the second quarter. It bought 553,000 more Microsoft shares, bringing its position to 6.2 million shares worth $2.3 billion, or 11.9% of the 14-stock portfolio.
Why it matters
Microsoft is now Pershing's largest AI holding. The firm's June report praised Microsoft's 365 suite, Azure's position as the second largest public cloud hyperscaler, and direct CEO Satya Nadella involvement in Copilot innovation. Microsoft also generated $19.6 billion in free cash flow and projects staying free-cash-flow-positive through fiscal 2027, contrasting with Alphabet's negative FCF of $5.9 billion and Amazon's negative $7.6 billion in recent quarters.
What to watch
Microsoft's quarterly revenue rose 18% year over year to $90 billion, net income was up 31% to $35.76 billion, and full-year Azure cloud revenue hit $100 billion. The stock has gained 25% since its late-July earnings report.
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Bill Ackman's Pershing Square has long concentrated its portfolio in a small group of large-cap companies, frequently including Magnificent Seven names like Alphabet, Amazon, Meta, and Microsoft. The second-quarter repositioning—selling Alphabet entirely, cutting Amazon by a quarter, and adding Microsoft shares—shows a clear preference for companies that can fund AI investment without burning cash.
Pershing's June interim report lays out the bull case: Microsoft's 365 suite (Word, Excel, PowerPoint) remains popular, Azure is the second largest public cloud hyperscaler, and CEO Satya Nadella's direct involvement has boosted Copilot innovation. The firm sees Azure as well positioned in a supply-constrained compute market, with capital expenditures as prudent investments.
The financial contrast is stark. Microsoft generated $19.6 billion in free cash flow and projects remaining positive through fiscal 2027, while Alphabet and Amazon posted negative free cash flow of $5.9 billion and $7.6 billion, respectively, in their most recent quarters. Pershing's move appears to bet on Microsoft's established profitable businesses funding continued AI investment—a thesis that may resonate with investors watching AI companies struggle to stay cash-flow positive.
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