This company has two dominant businesses in high-growth industries with potential for massive profits.
Billionaire Bill Ackman is one of the most widely followed investment managers on Wall Street. His Pershing Square Capital Management hedge fund has outperformed the S&P 500 in 2025. It’s up 22.9% as of the end of August, compared to a 10.8% gain in the benchmark index during that period.
Ackman’s outperformance stems from taking advantage of opportunities when the market temporarily undervalues certain stocks. He holds only a handful of positions in the fund, and he typically buys and holds them for a long time. Even better, he and his team are happy to share the details on social media and investor calls, making it relatively easy for average investors to follow along.
In May, Pershing Square disclosed that it had bought another member of the “Magnificent Seven” stocks. Its first Magnificent Seven stock, Alphabet (GOOG -0.72%) (GOOGL -0.73%), has been a longtime holding for the hedge fund, and represents one of its biggest holdings. While the new addition isn’t quite as large as its stake in Alphabet, it presents another great opportunity for those following Ackman’s investing style.
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A magnificent new position
The stock market saw some very big swings at the start of the year, which were exacerbated in early April by President Donald Trump’s tariff announcements. While the stock market was moving wildly, it presented several great opportunities for investors that could follow Warren Buffett’s timeless advice: “Be greedy when others are fearful.”
To that point, Ackman saw the chance to pick up one stock he’s been studying and has long admired. Amazon (AMZN -1.20%) shares fell on fears that tariffs would negatively affect its retail business, and that a slowing economy would produce less demand for its cloud computing services. Ackman and his team freed up capital by selling Pershing Square’s entire position in Canadian Pacific Kansas City to buy the stock.
Ackman got a steal of a deal. He said he bought shares at 25 times forward earnings estimates. While there was a lot of uncertainty at the time about whether those earnings estimates would need to be revised downward, Ackman had confidence that Amazon was well worth the price. In fact, he thinks the stock is still undervalued. “Although the company’s share price has appreciated meaningfully from our initial purchase, we believe substantial upside remains given its ability to drive a high level of earnings growth for a very long time,” he wrote in his letter to shareholders last month.
Here’s why Ackman may continue to hold Amazon shares for a very long time.
Two great category-defining businesses
Amazon essentially has two businesses: Its retail operations and its cloud computing platform. Ackman believes both still have room to benefit from long-term growth trends and opportunities for margin expansion.
On the cloud computing side, Amazon Web Services (AWS) is the largest public cloud provider in the world. It now sports a $120 billion run rate, and it’s about 50% bigger than its next-closest rival. It’s also tremendously profitable already. The segment sports a 37% operating margin over the past 12 months. To put that in perspective, Alphabet’s Google Cloud has an operating margin of less than half that (although it’s gaining leverage as it scales).
Despite Amazon’s large run rate, there’s still ample room for growth in both the near term and long term, according to Ackman. Amazon’s management has struggled to build out capacity fast enough to meet the surging demand from artificial intelligence customers. It’s spending over $100 billion on capital expenditures this year (some of that related to its logistics network), and management says that demand continues to outstrip supply growth. That situation is echoed by Alphabet’s management and other hyperscale cloud providers.
In the long run, Ackman expects more enterprises to move from on-premise computing to the cloud. He points out that just 20% of IT workloads are currently using cloud computing, but he expects that to invert over time, to 80% of workloads being in the cloud.
On the retail side of the business, Ackman points out that Amazon isn’t the only retailer affected by tariffs. In fact, it may be better suited to navigate the environment, as it sports a wide selection of goods. Amazon’s ability to offer reliable and convenient delivery on a growing number of items gives it an advantage over competitors.
That advantage is only improving as it continues to build out its logistics network and warehouse technology, and reduce costs. That allows it to get more items to more customers faster, all while decreasing its fulfillment expenses. Ackman points out that Amazon’s logistics improvements led to a 5% reduction in per-unit shipping costs last quarter. He thinks further improvements could lead it to double its retail profit margin from 5%. That’s a huge profit on a $550 billion business.
While Amazon shares have climbed significantly since Ackman established Pershing Square’s position, investors shouldn’t shy away from the stock at this higher price. The long-term trends favor Amazon’s businesses, and it’s a leading player in both.
Adam Levy has positions in Alphabet and Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Canadian Pacific Kansas City. The Motley Fool has a disclosure policy.