Bill Ackman explains why he is avoiding an investment in Anthropic

A preference for predictability

Pershing Square CEO Bill Ackman recently discussed his investment philosophy during a conversation with Yahoo Finance. He explained that his primary goal is to own dominant, long-term businesses that have a very low probability of being disrupted by artificial intelligence. Ackman looks for companies that can compound value over time rather than chasing short-term momentum trades.

The investor noted that many market participants have focused on 'shiny objects' like new clouds and the 'picks and shovels' of the AI trade. He believes that the market is currently moving toward a more sane orientation that prioritizes business quality and cash flows. This shift allows him to find high-quality companies that have become attractive due to recent market volatility.

Ackman's strategy is built on being a low-risk investor who wants to predict outcomes with a high degree of confidence. He avoids positions where the path to profitability is obscured by massive, ongoing costs. This philosophy explains why he remains cautious about the most prominent names in the new AI landscape.

The complexity of Anthropic

When asked about Anthropic, Ackman admitted that his team has performed due diligence on the company. They came away positively inclined, noting that the firm has a strong balance sheet and a clear path toward generating cash flow. They recognized it as a remarkable business story, describing it as perhaps the most amazing story of the century in terms of its growth from zero.

However, Ackman stated that the company does not fit into his portfolio because it is a much more complicated question to determine what the business is actually worth. He pointed out that any business requiring massive investments to accelerate growth creates a higher risk proposition. If an investor is wrong about how quickly revenues will grow or how much capital will be needed to meet demand, the risk is significant.

He compared the difficulty of valuing Anthropic to the simplicity of a 'widget company' that sells a small percentage more products each year. Because Anthropic's capital expenditure is so real and tied to staying in a lead position, the range of possible outcomes is too wide. For a portfolio built on precision, the speculative nature of the AI valuation makes it an unsuitable target.

The role of hyperscalers

Ackman highlighted the symbiotic relationship between AI model providers and the massive cloud platforms that host them. He noted that Anthropic relies on hyperscalers, such as Amazon and Microsoft, for a significant portion of its reach. He estimated that approaching 50% of Anthropic's revenues come through these gateways to access models for corporate users.

This distribution channel is a key factor in how AI companies reach the enterprise market. Ackman argued that while new products can be impressive, they often lack the established sales channels and connectivity that giants like Microsoft possess. Microsoft's platform provides the security and monitoring controls that large companies require to manage their AI usage safely.

By providing the infrastructure, Microsoft acts as a gatekeeper for the 450 billion business seats it already reaches. Ackman believes this entrenched position makes it very difficult for smaller software companies to dislodge them. He views the partnership between the model creators and the cloud providers as a powerful way to scale AI to the masses.

Quality over hype

The conversation also touched on Ackman's current favorite positions, which include companies like Fannie Mae and Freddie Mac. He views these as high-risk, high-reward plays based on the potential for privatization and the release from conservatorship. He believes these stocks could see a 10X return if specific political actions occur, despite them being currently discarded by much of the market.

In contrast to these speculative plays, he maintained his long-term belief in established names like Microsoft and Netflix. He views Microsoft as a necessary gateway for desk workers and Netflix as a strong business that has remained resilient despite changing viewer habits. He believes the passage of time and continued earnings growth will eventually move these stocks back into the right range.

Ultimately, Ackman's approach suggests that the most attractive investments are those that combine high quality with defensible market positions. He is looking for businesses that can survive a highly disruptible world by being too integrated into the basic workflows of the economy. This focus on