Appaloosa’s billionaire boss reversed course in the second quarter by becoming a big-time buyer of Nvidia stock and a seller of the hottest AI-networking company.
Last Thursday, Aug. 14, marked one of the most important days of the third quarter for investors. Though earnings reports and economic data releases are a near-everyday occurrence, the quarterly filing of Form 13Fs with the Securities and Exchange Commission (SEC) can be invaluable to investors.
No later than 45 calendar days following the end to a quarter (Aug. 14 for the June-ended quarter), institutional investors with at least $100 million in assets under management are required to file a 13F with the SEC. This filing allows investors to track which stocks Wall Street’s leading fund managers purchased and sold in the latest quarter. In other words, it’s an easy way to pick out which stocks and trends are piquing the interest of the market’s smartest investors.
Though Warren Buffett is the most followed of all asset managers on Wall Street, he’s far from the only billionaire known for finding amazing deals hiding in plain sight. Appaloosa’s billionaire boss David Tepper is another closely tracked fund manager.
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What’s made Tepper worth following is his investment activity in the artificial intelligence (AI) space. A highly turbulent second quarter for Wall Street’s major indexes allowed Tepper to reverse course on two prominent companies in his fund’s portfolio. He nearly 6X’d his position in the face of the AI revolution, Nvidia (NVDA 0.94%), and completely exited his fund’s stake in one of the hottest trillion-dollar AI stocks after only one quarter.
Billionaire David Tepper upped his Nvidia stake by 483% in just three months
Before the second quarter, Appaloosa’s billionaire chief had been a persistent seller of Nvidia stock. Taking into account Nvidia’s historic 10-for-1 forward split in June 2024, Appaloosa had pared down its position in Nvidia from 10.2 million shares at the end of June 2023 to just 300,000 shares by March 31.
But Tepper reversed course in a big way during the June-ended quarter. President Donald Trump’s tariff-induced swoon on Wall Street in early April enticed the buying of high-growth tech stocks, and investors who took the opportunity to do so have been handsomely rewarded. Tepper’s fund added 1,450,000 shares during the second quarter, which increased its position by 483%!
There’s no question Nvidia brings well-defined competitive advantages and catalysts to the table, which is what probably enticed Tepper to pile back in.
For starters, Nvidia’s Hopper (H100) and Blackwell graphics processing units (GPUs) account for the lion’s share of GPUs deployed in enterprise AI-accelerated data centers. In terms of compute abilities, no other GPUs are particularly close to matching or surpassing Nvidia’s hardware. To boot, CEO Jensen Huang is investing aggressively in innovation, with the goal of bringing a new advanced AI chip to market on an annual basis.
The CUDA software platform is another catalyst that’s propelling Nvidia’s double-digit growth. CUDA is the toolkit developers use to get the most out of their AI-GPUs, as well as to build and train large language models. It’s effectively the lure that’s keeping the company’s clients loyal to its ecosystem of products and services.
Furthermore, Nvidia is benefiting from the clearing trade clouds. Even though the U.S. and China have yet to agree to a trade deal, the Trump administration has removed restrictions on shipments of Nvidia’s H20 AI chip to the world’s No. 2 economy by gross domestic product. Even though Nvidia pays the U.S. government 15% of its sales to China as something of an export tax, it’s an improvement over the rigid export restrictions that had been in place.
But even the world’s largest public company faces potential headwinds.
For instance, AI-GPU competition is rapidly intensifying from within. While most people are focused on the ramp-up in AI chip production from external competitors, many of Nvidia’s top customers by net sales are internally developing AI-GPUs to use in their data centers. Though this hardware can’t match Nvidia’s on a compute basis, it’ll be considerably cheaper and more readily available (i.e., not backlogged). This presents as a potential problem for Nvidia’s pricing power and margins.
The other notable issue with Nvidia is that every game-changing technological advancement for more than three decades has endured a bubble-bursting event at some point early in its expansion phase. With no indication that artificial intelligence will be an exception to this unwritten rule, Nvidia stock would, presumably, be hit hard if the AI bubble bursts.
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Appaloosa’s billionaire boss kicked this trillion-dollar networking stock to the curb
On the other end of the spectrum, Tepper showed five stocks (excluding options) to the door during the June-ended quarter. Perhaps no complete exit from Appaloosa’s fund was more of an eye-opener than that of Broadcom (AVGO -0.13%).
Though Tepper and his team run a fairly active fund — they’re regularly adding to or paring down existing positions — Broadcom found itself in a revolving door. Tepper oversaw the purchase of 130,000 shares during the March-ended quarter, and all 130,000 shares were sold during the second quarter.
One of the most logical explanations for kicking this trillion-dollar networking stock to the curb is simple profit-taking. If Tepper opened Appaloosa’s stake in Broadcom toward the end of the first quarter, he would have netted shares for around or below $180. By the end of June, these same shares were changing hands at nearly $276. A potential gain of approximately 50% in three months from one of Wall Street’s most influential businesses isn’t a common occurrence.
Tepper may have also been less than enthused with Broadcom’s valuation, relative to Nvidia. Even though Broadcom’s forward price-to-earnings (P/E) ratio of 37 isn’t egregiously high considering its projected annual growth rate of around 20%, Nvidia’s forward P/E of 31 may be more palatable given its more direct AI ties and its presumed-to-be faster growth rate.
It’s possible Appaloosa’s billionaire investor changed his tune on Broadcom because of tariff-related concerns during the second quarter. Tariffs applied to finished products imported into the U.S. that contain Broadcom chips run the risk of reducing demand for Broadcom’s products and/or pressuring its pricing power.
Although Broadcom is no longer the screaming bargain it once was, it still possesses catalysts that are capable of making Tepper regret his decision to sell.
Within the AI realm, Broadcom offers the preferred solutions for connecting tens of thousands of GPUs in AI data centers to maximize their compute potential and reduce tail latency. Reducing lag is incredibly important when software and systems are being empowered with the tools to make split-second decisions.
But what makes Broadcom special is that it’s much more than just an AI stock. Whereas an overwhelming majority of Nvidia’s revenue derives from AI-GPUs, Broadcom generates a substantial portion of its net sales from chips and accessories used in next-generation smartphones, as well as solutions for Internet of Things devices and automobiles. While these segments aren’t growing anywhere close to as fast as advanced AI chips/networking solutions, they’d provide some degree of downside protection if the AI bubble were to burst.