Artificial intelligence (AI) stocks have been major market movers in recent quarters, and for good reason. AI, like electricity and the internet before it, is poised to be a transformative technology. This has led to a surge of investor interest in potential AI winners.
With a multitude of AI stocks available, selecting the right ones can be challenging. Fortunately, there’s room for various success stories in this area, providing multiple avenues for portfolio growth. One strategy is to observe how expert investors are navigating this market. With this approach in mind, let’s examine the recent investment decisions of billionaire David Tepper.
Tepper, the founder of Appaloosa Management, has a proven track record, with the fund achieving an impressive average annualized return of 28% since its launch in the early 1990s. What moves is Tepper making now to capitalize on AI?
A Tech-Focused Investment Strategy
Tepper is a substantial investor in technology stocks, with a particular emphasis on well-diversified e-commerce companies. As of the most recent quarter, Appaloosa Management’s largest holdings were Alibaba and Amazon. However, during that quarter, the fund slightly reduced its stakes in several technology stocks, including Amazon, in favor of a company experiencing significant growth in the AI sector, specifically Nvidia.
Here’s a breakdown of Tepper’s stock adjustments during the fourth quarter of 2024:
- Tepper reduced his Amazon holdings by 18%, retaining 2.6 million shares.
- He decreased his stake in Meta Platforms by 21%, holding 490,000 shares.
- The billionaire cut his position in Oracle by 11%, now owning 1.4 million shares.
Furthermore, regarding the AI buy during the most recent reporting period:
- The investor increased Appaloosa’s position in Nvidia (NVDA) by over 8%, now owning 680,001 shares.
While Amazon and Oracle continue to represent significant portions of Tepper’s portfolio, his increased investment in Nvidia suggests a positive outlook for the company, even though its stock price has soared approximately 800% over the past two years.
Should Investors Follow Tepper’s Lead?
Should investors mirror Tepper’s move and invest in Nvidia? The strategy appears sound. Tepper is invested in several top players already benefiting from AI. Amazon’s cloud business recently reached a $115 billion revenue run rate because of AI products and services. Oracle reported that a surge in “record” AI demand drove its cloud infrastructure revenue up by over 50% in the latest quarter. Although Tepper reduced some positions, he remains well diversified across these high-potential companies and isn’t overly reliant on one stock.
Increasing the Nvidia stake was wise, the tech giant makes a compelling buy for any investor looking to potentially score an AI win. Nvidia dominates the AI chip market and has a broad range of related products and services. This has fueled quarter-over-quarter revenue growth and Nvidia’s focus on innovation hints that this trajectory may continue. The stock is trading at a relatively low valuation (29 times forward earnings estimates.)
Investors looking to potentially score an AI win should follow billionaire David Tepper’s strategy by holding a variety of strong AI players… and picking up more shares of Nvidia.
