Hedge fund managers are making big moves to capitalize on the artificial intelligence (AI)-driven stock market gyrations. Billionaire Bill Ackman made some in his portfolio last quarter, completely selling out of Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) for his investment fund, Pershing Square. Given the timing of the buys and sells, it is likely that Pershing Square reaped multibagger returns from its investment in Alphabet.
What did Ackman buy with his Google proceeds? He turned to another AI technology giant: Microsoft (NASDAQ: MSFT). It had been a laggard in the first half of 2026 and was down about 20% from its Q2 highs when Pershing Square topped off its position.
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Microsoft is now back near all-time highs and the largest position in the Pershing Square portfolio. Does that mean Ackman made the right move to dump Alphabet for Microsoft?
Microsoft’s booming cloud business and software fears
In early 2026, Microsoft’s share price was facing two thematic headwinds. First, as the world’s largest enterprise software company, Microsoft’s stock dipped alongside the rest of the sector amid concerns that AI would disrupt everything.
It turns out that no AI disruption has occurred so far, or that it is taking much longer than pessimists assumed. Microsoft’s commercial 365 software revenue rose 14% year over year in constant currency last quarter, showing no signs of disruption from AI.
Second, Microsoft had some weakness relative to other major technology players due to OpenAI’s speed bumps in 2026. Previously, Microsoft was the leading cloud provider for OpenAI and was seen as reliant on OpenAI for revenue growth at its Azure cloud business. Microsoft has since diversified its AI cloud business beyond a sole bet on OpenAI, while also securing major commitments from its flagship partner.
Last quarter, Microsoft’s cloud revenue increased 27% to $59.3 billion, with remaining performance obligations rising 84% to $678 billion. On these numbers, the stock price has begun to recover and is now down just 5% from the 2025 highs.
A cheap earnings multiple compared to the rest of big tech
Compared with other large technology players such as Alphabet, Microsoft had a much lower valuation in the first half of 2026. Earlier this year, when Pershing Square was buying, Microsoft had a forward price-to-earnings ratio (P/E) in the low 20s. For a business with revenue increasing in double-digit percentages with a huge order backlog, that is a low price, which was driven by the slump across the entire enterprise software sector.
