Bill Ackman Defends S&P 500 Valuation on Growth
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- Bill Ackman wrote to Pershing Square shareholders that the S&P 500’s forward P/E of ~20.6x, though above its long‑term average, is justified by the earnings growth of its mega‑cap constituents.
- The S&P 500’s ten largest stocks, making up 38.5% of the index’s market cap, have forward P/E ratios from 19.6x (Meta) to 184x (Tesla), with a median multiple of 26x.
- Ackman highlighted that those ten firms are projected to grow earnings per share by more than 20% annually over the next two years, citing their global scale, market dominance, cheap capital, and AI leadership as structural advantages.
- Ackman increased Pershing Square’s Amazon holding in Q4 and opened a new position in Meta, indicating he sees these mega‑caps as bargains at current prices.
- Howard Marks echoed Ackman’s view, noting that the “Magnificent Seven” have high valuations but strong products, market share, margins, and moats, while warning that the remaining 493 S&P 500 companies could be riskier.
- Walmart’s forward P/E of 42 is questioned by Ackman, especially compared with Amazon’s 27 P/E, suggesting its digital‑transformation premium may be overstated.
- Tesla’s forward P/E of 184 is flagged as potentially overvalued unless its robotaxi and humanoid‑robot ambitions materialize, according to Ackman’s analysis.
Why it matters: Investors who follow Ackman's logic may feel comfortable holding or adding to mega‑cap positions such as Amazon and Meta, while remaining cautious of high‑priced names like Walmart and Tesla; the analysis also validates index‑fund strategies that concentrate on the few dominant firms, potentially shaping allocation decisions across portfolios.
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