David Tepper, the founder and president of Appaloosa Management, one of the most successful hedge funds in history, recently adjusted his portfolio. According to a report from LCH Investments, Appaloosa Management is among the top 15 hedge funds based on gains since its inception. During the fourth quarter, Tepper made notable moves, including selling a portion of his Amazon holdings and increasing his investment in Vistra.
Tepper’s Portfolio Shifts
During the final quarter, Tepper sold 600,000 shares of Amazon (AMZN 0.63%), reducing his position by 19%. At the same time, he bought 1.4 million shares of Vistra (VST -0.90%), more than doubling his existing stake. Vistra, a power-generation company, could potentially benefit from rising electricity demand fueled by the growth of artificial intelligence and data centers.
While both Amazon and Vistra shares have dipped about 10% since the end of the fourth quarter, Wall Street analysts anticipate strong rebounds for both stocks in the coming months. Amazon has a median target price of $270 per share, indicating a 36% upside from its current price of around $198. Vistra’s median target price is $192 per share, suggesting a 55% upside compared to its current price of roughly $124. Let’s examine the details of these investments.
Amazon’s Growth Pillars
Amazon is driven by three key growth drivers: e-commerce, digital advertising, and public cloud services. The company is actively using artificial intelligence (AI) to improve revenue and operational efficiency across these segments. According to Morgan Stanley, Amazon is an underappreciated leader leveraging AI in retail and cloud computing.
For example, Amazon operates the world’s largest online marketplace outside China, supporting its merchants with an extensive logistics network. The company utilizes machine learning to recommend products, optimize inventory, and plan delivery routes. These efforts have already led to improved margins for the company. Amazon Web Services (AWS) is the leading cloud provider by sales and is the preferred cloud platform among developers, positioning Amazon as a winner in the AI boom.
Amazon is also quickly innovating within the sector. CEO Andy Jassy recently stated that “In the last 18 months, AWS has released nearly twice as many machine learning and generative AI features as the other leading cloud providers combined.”
Despite missing sales estimates in its adtech segment, Amazon showed solid results in the fourth quarter. Revenue grew 10% to $187 billion, the operating margin expanded by more than 3 percentage points, and earnings increased by 86% to $1.00 per diluted share. Management also indicated that cloud revenue growth could have been even greater if AWS’s capacity wasn’t constrained.
Analysts anticipate Amazon’s earnings to grow at 21% annually over the next three years, making the company’s current valuation of 36 times earnings look reasonably attractive. But why did Tepper reduce his stake in Amazon during the fourth quarter? It’s likely he was rebalancing his portfolio. However, it’s doubtful he has lost confidence in the stock, which remained his second-largest holding at the end of the quarter.
Vistra: The Power Play
Vistra is a fully integrated power-generation and retail electricity company. Its extensive portfolio consists of coal, natural gas, nuclear, and renewable energy facilities, which add up to 41,000 megawatts of generating capacity. This makes the company the largest competitive power producer in the U.S. It also owns the second-largest nuclear fleet in the country.
Vistra mainly operates in the ERCOT (Texas) and PJM (13 eastern states) markets. This positions the company to profit from increased manufacturing activity, the electrification of the Permian Basin, and growing electricity demand from AI data centers. Demand in these regions is forecast to grow at nearly three times the rate it did in the past decade through 2030.
Vistra presented solid financial results for the fourth quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), which excludes unrealized gains and losses from hedging contracts used to mitigate energy price volatility, rose 107% to $1.9 billion. However, the stock price fell after the results were announced because investors were disappointed that Vistra had not yet secured contracts to supply power to major tech data centers.
Investors are justified in questioning the extent to which AI data centers will drive up electricity demand. Recent technical papers show that the Chinese start-up DeepSeek claims to have developed AI models comparable to those from U.S. companies such as OpenAI, but DeepSeek did so using fewer and less powerful Nvidia GPUs. Some of the expected demand for electricity may not materialize, and I’m not sure that possibility has been fully priced into Vistra’s stock.
Currently, Vistra trades at 17.5 times free cash flow, which is a premium to its two-year average of 11.8 times free cash flow. This makes the stock somewhat risky. While Vistra shares could significantly increase if the company signs power supply deals with big tech firms, a more conservative investment strategy may be to invest in an index fund that tracks the utilities sector, as this approach presents less concentrated risk.
