Bill Ackman on Earnings Growth

The S&P 500’s total return over this period was 26% in 2023, 25% in 2024, and 18% in 2025 including dividend reinvestment. This sustained high level of performance has naturally led some observers to question whether market valuations have become detached from fundamentals. In our view, while the stock market could decline materially from current levels for reasons that are today unknown, the stock market’s advance has been largely supported by earnings growth rather than speculative excess. Of the S&P 500’s roughly 13% average annual return from 2020 through 2025, approximately 10 percentage points were attributable to earnings-per-share growth while only about three percentage points came from P/E multiple expansion. In other words, the market has not been driven principally by investors simply paying a higher multiple for earnings, but rather by the growth in profits of the index’s components. The S&P 500’s ~10% earnings-per-share growth over the past six years compares with ~7% in the five years prior to COVID and roughly ~8% since 1990. In the last two years, earnings-per-share growth has been even higher with 13% growth in 2024 and 14% in 2025. In the next two years, stock market analysts estimate that earnings per share will continue to grow at 14%.

Pershing Square Holdings, Ltd. 9 This increase in earnings growth is one of the most important developments in the market over the last several years, and it is not evenly distributed across the index. A substantial portion of the market’s elevated growth in earnings has been driven by the top ten largest companies in the S&P 500, which have had a disproportionate impact on the index’s performance and its price/earnings multiple in light of the index’s capitalization-weighted composition. Collectively, the ten largest companies, which account for nearly 40% of the capitalization of the overall index, are expected to grow their earnings per share by more than 20% for each of the next two years, which is nearly triple the level of growth expected for the remaining 490 companies in the index. We believe this concentration of performance and market value is not a temporary phenomenon, but rather a reflection of the durable structural advantages enjoyed by the highest-quality mega cap companies, which include their global scale, dominant market positions, access to low-cost capital, and leadership in artificial intelligence and related technologies. If the S&P 500 can sustain structurally higher earnings growth driven disproportionately by the top handful of these companies, we believe the market’s P/E multiple is justified and can remain sustainably higher than historical averages.

For instance, the rollout of Business AI on Meta’s messaging platforms could be a game-changer for businesses to pursue scalable, low-cost customer engagement and wearables like Meta Ray-Bans, which present new avenues to leverage AI interactively in the real world. We believe the substantial upside potential from AI, both within Meta’s compute-constrained core business and in its new initiatives, supports front-loading investments in infrastructure and talent. After Meta’s next year's planned spending ramp, we expect the company to resume its rapid long-term earnings growth algorithm. Notably, in its year-end earnings call at the end of January, management stated that the near-term acceleration in revenue growth would allow it to continue to grow operating income in 2026 despite significantly elevated levels of investment spending. In addition, the company noted that losses at the Reality Labs division will peak in 2026 and moderate in future years. Should Meta’s high levels of revenue growth slow down or the returns on its AI investments be lower than anticipated, we are confident the company will be able to retain the operational levers – reminiscent of the 2023 “Year of Efficiency” – to moderate expenses, maintain profit margins, and deliver continued strong earnings-per-share growth. Our investment in Meta highlights our approach of closely following a watchlist of high-quality businesses and waiting patiently for an attractive entry price.

Pershing Square Holdings, Ltd. 15 offerings, continues to invest in its logistics network to allow for same-day shipping to an increasing percentage of its customer base, and leverages AI investments to improve the overall customer purchasing experience. We estimate that Amazon’s retail business’s structural profit margin potential to be meaningfully higher than its current ~7% level achieved this year after adjusting for differences in its business mix relative to peers and factoring in its fast-growing, high-margin advertising revenue. Moreover, the company is seeing large productivity gains from warehouse automation and its one-of-a- kind logistics network. As a proof point, per-unit shipping costs have been steadily declining for the last eight quarters in a row. While Amazon’s share price has appreciated from our initial cost, it continues to trade at an attractive multiple of approximately 26 times earnings per share, a highly discounted valuation relative to peers and its expected earnings per share growth rate of 20%+ over the medium to longer term. Brookfield Corporation (“BN” or “Brookfield”) Brookfield is a high-quality, asset-rich, rapidly growing business that has a long-term track record of excellent capital allocation.

We initiated our position in Brookfield in 2024 during a period of substantial dislocation where BN traded at a deep discount to intrinsic value – essentially valuing its vast invested capital base at close to zero after accounting for its 73% ownership in its asset management franchise, Brookfield Asset Management. Brookfield delivered strong performance in 2025 driven in equal measure by earnings growth and multiple expansion. Distributable earnings (“DE”) – a proxy for recurring economic earnings – showed solid gains, though the headline numbers still obscure the significant latent earnings power at the company. Growth was principally driven by the rapid scaling of Brookfield’s captive annuities and insurance business (“Brookfield Wealth Solutions,” or “BWS”) as BN continues to expand its operations and reposition acquired investment portfolios for higher long-term yields. This growth is expected to accelerate further upon the closing of the Just Group acquisition. This transaction will expand BWS’s fixed-annuity portfolio by ~30% to ~$180 billion and firmly position Brookfield as a major player in the attractive U.K. market where BN is already one of the largest real estate and infrastructure investors.

The decline in earnings contribution from Brookfield’s real estate businesses partially offset BN growth in 2025 and reflects targeted balance sheet simplification actions and softer macroeconomic conditions at Brookfield’s small but highly cash generative residential homebuilder business. Importantly, growth in 2025 remained meaningfully below our view of Brookfield’s structural potential and management’s long-term targets. The company’s current level of Distributable Earnings do not reflect the likely step-function increase in future carried interest realizations, nor the full earnings power of BWS insurance float. In addition, we believe Brookfield’s single largest business, Brookfield Asset Management, which comprises more than 50% of Brookfield Corporation’s total value, is positioned for growth in fee earnings of 20% or more this year. In total, we expect BN’s DE growth to meaningfully accelerate this year with the potential to grow 25% or more, a level that is consistent with management’s targeted 25% annual growth rate over the medium term. Despite Brookfield’s strong growth outlook, its valuation remains compelling. Brookfield presently trades at 14 times our estimate of distributable earnings per share, or only 11 times when adjusted for the steady-state earnings power of BWS and a normalized level of carried interest.

At the same time, the management team is taking actions to simplify the business and return QSR to its historic fully franchised capital-light business model. The China business has returned to consistent growth, and its recent sale to a new master franchisee should serve as a catalyst for accelerated expansion, with the new partners providing a capital commitment of $350 million to more than triple the store base over the next decade. We expect this renewed pace of store growth will allow QSR to return to its historic mid-single-digit unit growth rate in the coming years.

Pershing Square Holdings, Ltd. 19 In the U.S., the acquired Carrols stores are outperforming the broader Burger King system, validating the unit economics of the company’s remodel program and its recent investments in the system. As a result, QSR’s plan to refranchise these stores to smaller, operator-led franchisees is proceeding ahead of schedule. The company will host an investor day at the end of February, where we expect management to provide further detail on the building blocks of its future growth strategy while reaffirming its long-term targets of at least 8% annual operating profit growth. Despite these strong results and inflecting trends, QSR trades at only 16 times our estimate of earnings per share, which represents a discount of nearly 30% to peers with comparable long-term, earnings growth potential. With a strong operating model, improving financial performance, and a deeply discounted valuation, QSR remains a highly attractive investment. Uber Technologies (“Uber”) Uber is the world’s leading mobility and delivery platform. The company operates a high-quality, capital-light, high-growth business which benefits from robust structural network effects. We acquired our position in early 2025 at an attractive valuation, capitalizing on the dislocation driven by misplaced market fears regarding the perceived threat from autonomous vehicles (“AVs”).

We anticipate that over time Uber and Waymo will further expand their partnership to include additional cities and geographies. Beyond Waymo, Uber is laser focused on advancing and partnering with many smaller AV companies. In 2025, Uber broadened its go-to-market AV approach, announcing new and expanded partnerships with Avride, Baidu, Lucid, May Mobility, Momenta, Nuro, Nvidia, Pony.ai, Waabi, Wayve, WeRide and others. Overall, Uber is advancing dozens of geographically focused commercial pilots with a host of regional partners, creating line-of-sight to tens of thousands of autonomous vehicles covering major metropolitan cities operating on Uber’s network within the coming years. We believe that as AV technology becomes more widespread, the value of the “driver” will lessen, and the overall marketplace network will become an increasingly important point of differentiation. We believe that AV technology will not be a winner-take-all model and that third-party networks, and Uber in particular, have a valuable role to play. The stock market clearly underappreciates the durability of Uber’s moat, the magnitude of its earnings growth, and the strategic role it will play in shaping the future of mobility. Uber currently trades at less than 20 times our estimate of earnings per share, which is a bargain relative to our expectation that Uber will generate 30% or greater annual earnings per share growth over the medium-term.

The company has recently signed deals with new AI-native DSPs that monetize this music creation with AI at a higher per-user level than traditional streaming, all while creating “walled gardens” that protect artist rights. UMG also possesses a vast catalog library that can both be made available to fans looking to experiment with AI tools and allow the company to revitalize this historic IP through new releases. We expect the company will continue to announce new deals with partners launching new and exciting tools. Separately, UMG has ensured that deal renewals with traditional DSPs include dilution and rights protections. DSPs like Deezer and Spotify have already begun to demonetize background music and tracks that fail to hit minimum streaming thresholds. Ultimately, there is a natural ceiling to the amount of AI content a service can host; if it becomes too large a percentage of a platform's library, it degrades the listening experience and increases hosting and ingestion costs for the provider. Given UMG’s dominant market position and decades-long runway for sustained earnings growth, we believe the current valuation represents a very large discount to intrinsic value.

Pershing Square Holdings, Ltd. 22 Recently Exited Equity Positions: Hilton (“HLT”) We exited our investment in Hilton after a highly successful, more than seven-year holding period. Hilton is a quintessential Pershing Square investment: a high-quality, asset-light, high-margin business with significant long-term growth potential and superb management. We initiated the position in 2018 at an attractive valuation of less than 23 times our estimate of earnings per share for the following year. At the time, HLT traded at a discount to both its historical average and our estimate of intrinsic value, as investors were concerned about a potential macroeconomic slowdown and failed to appreciate the high-quality nature of the company’s fee-based business model and highly attractive earnings algorithm. Over the subsequent years, Hilton generated excellent financial results, anchored by best-in-class net unit growth which drove fee revenue growth of approximately 70%. Strong top-line performance was enhanced by exceptional cost control, with corporate overhead essentially flat over the past seven years, driving operating profit growth of 85%. Earnings growth was further supported by best-in-class capital allocation – Hilton retired more than 20% of its outstanding shares at highly accretive prices – driving a 150% increase in earnings per share over our holding period.