Ackman Argues Wall Street Undervalues Big Tech's $740 Billion AI Spending While Pershing Holds Three of the Four Stocks

Bill Ackman thinks the market is reading half the spreadsheet on Big Tech.

In Pershing Square Capital Management's third-quarter 2026 letter, Ackman and Chief Investment Officer Ryan Israel argue that analysts are mispricing Amazon, Microsoft, Meta Platforms and Alphabet. Their complaint: consensus estimates carry the full cost of the AI buildout but give little credit to the revenue it could produce.

The numbers in the letter

Combined capital spending at the four companies is expected to climb from roughly $140 billion in 2023 to about $740 billion in 2026. Consensus estimates put 2027 at a little over $1 trillion.

The letter says hyperscaler earnings have grown about 27% on average. Their shares have gained only about 8% on average year to date through early November. Over the same stretch, semiconductor stocks rose 44% and technology hardware 36%.

The gap is not uniform across the group. Amazon and Microsoft are ahead of the S&P 500 for the year, while Alphabet and Meta are down.

Ackman and Israel wrote that consensus expects today's capital intensity to persist for years while assuming minimal acceleration in revenue growth beyond this year and next. In their words, the estimates treat the buildout "as a structural increase in maintenance capital intensity" rather than an investment that can produce outsized growth.

Offense, not defense

"We believe that the hyperscalers' capital spending is offensive rather than defensive," the letter says. It argues the companies are investing to accelerate growth, backed by distribution, customer relationships, proprietary data and balance sheets few rivals can match.

On funding, the letter says the companies "can finance the substantial majority of their capital expenditures from the prodigious cash flows of their core businesses."

The unit economics are the core of the case. Pershing estimates a gigawatt of new data-center capacity costs $40 billion to $50 billion to build and could generate $15 billion to $20 billion in annual revenue. On those assumptions, the letter says hyperscaler revenue growth could beat consensus by 5 to 10 percentage points a year through 2029.

That is revenue, not profit. The projection also depends on pricing, demand and utilization holding up for several years.

Pershing is not a neutral party

Pershing bought Microsoft, Meta and Amazon shares during selloffs tied to capex worries. Ackman said on CNBC's Squawk Pod that the fund bought Meta at a steep discount after the company announced its spending plans.

The fund sold its Alphabet position earlier in 2026. It is backing three of the four companies its letter defends. If the revenue shows up, Pershing profits. That does not make the argument wrong, but it makes Ackman an interested party.

The letter highlights AWS, where revenue growth reached 39% in the third quarter, as evidence of AI spending turning into sales at Amazon.

The market's objection

Investors are demanding proof, not projections. Joe Tigay, portfolio manager at Equity Armor Investments, put it this way: "We're moving out of the hopes and dreams phase of the AI trade and into the 'show me' phase." He added that investors want to see who can "turn that demand into earnings and generate cash."

The October earnings showed why. Alphabet shares fell more than 12% on Thursday, Oct. 29, erasing about half a trillion dollars in market value, after results showed slower search advertising growth and higher AI spending. Matt Maley, chief strategist at Miller Tabak + Co, said Alphabet's promised AI returns were "getting pushed even further down the road." Alphabet's October was its worst month on record.

Amazon's results missed analyst expectations on sales and profit, and its advertising growth slowed. Both Alphabet and Amazon forecast higher AI capital spending in 2027. The Nasdaq ended October 7.8% below its early-month record, its worst monthly decline since March 2025.

Microsoft held up better but showed the same strain. Its fiscal first-quarter revenue rose 19% to $92.3 billion and earnings per share rose 32%, both beating estimates. Capital expenditures were $39.4 billion, up from $19.4 billion a year earlier. Free cash flow for fiscal 2026 was $66.99 billion, down 6.46% from 2025. On Oct. 29, Microsoft announced a $25 billion corporate debt issuance.

Free cash flow has turned negative at Meta, Alphabet and Amazon, and buybacks have been cut sharply, according to BigGo Finance. Pershing's letter acknowledges the funding question but says the companies can cover most of the spending internally.

The wider economy

The AI buildout is also visible in the national numbers. Third-quarter GDP grew at a 3.4% annualized rate. Nonresidential fixed investment rose 12.7% and added 1.78 percentage points to growth. Equipment investment jumped 20.9%, and computers and peripherals alone contributed about seven-tenths of a point.

Net exports subtracted 3.32 percentage points, with a record share of imports coming from capital goods. Much of the hardware behind the buildout is being imported.

What comes next

Microsoft has said it expects capital spending to rise again in its fiscal second quarter, which ends Dec. 31. Alphabet and Amazon have guided to higher AI spending in 2027. Those results will show whether Ackman's revenue acceleration is arriving or whether spending is outrunning it.