Billionaire David Tepper likes artificial intelligence (AI) stocks -- the bigger, the better. Pick a megacap AI stock, and there's a pretty good chance that it's in the portfolio of his hedge fund, Appaloosa Management.
Tepper isn't as big of a fan of some of these stocks as he is of others, though. The successful hedge fund manager has been selling shares of Nvidia (NVDA 6.18%) and Google parent Alphabet (GOOG 9.96%) (GOOGL 10.22%) hand over fist, but he has been buying two other "Magnificent Seven" stocks.
Not so magnificent in Tepper's view
In the fourth quarter of 2023, Tepper slashed Appaloosa's stake in Nvidia by nearly 23%. While the GPU maker still ranks as the hedge fund's fourth-largest holding, Tepper clearly isn't as bullish about it as he once was.
Why would the billionaire sell such a big chunk of his position in Nvidia? The most likely answer is its valuation. Nvidia's share price skyrocketed by nearly 240% last year. Tepper could have been concerned, as quite a few other investors were, that the stock's valuation was becoming frothy.
Appaloosa also reduced its stake in Alphabet by more than 16%. Again, Tepper hasn't thrown in the towel on the tech giant. Alphabet remains the seventh-largest position in his hedge fund.
Valuation probably wasn't the overriding factor behind the decision to sell some of the stake in Alphabet. It's possible, though, that Tepper might have been concerned that Alphabet's revenue from Google Search could be threatened by the development of AI-powered virtual assistants.
The Magnificent Seven stocks Tepper is buying
So which Magnificent Seven stocks is Tepper more enthusiastic about? He added to Appaloosa's stakes in two of them.
Amazon (AMZN 3.43%) already ranked as Appaloosa's third-biggest holding. In Q4, the hedge fund added another 200,000 shares, increasing its stake by more than 5%.
It's not hard to think of reasons why Tepper might have decided to invest more heavily in the e-commerce and cloud services leader. Its profitability has been improving significantly, and Tepper could expect this trend to continue in 2024.
He also remains a fan of Microsoft (MSFT 1.82%). The technology giant held the No. 2 spot in Appaloosa's portfolio going into Q4. During the quarter, Tepper bought an additional 65,000 shares of Microsoft -- enough to boost the hedge fund's stake by nearly 4%.
Microsoft continues to fire on all cylinders. The company's integration of OpenAI's GPT-4 model throughout its product lineup appears to be paying off handsomely. Customers are flocking to Microsoft's Azure cloud platform and the AI tools that it offers. Microsoft's acquisition of Activision Blizzard also puts it in a stronger position in the gaming market.
Smart moves?
Were these buy-and-sell transactions of Magnificent Seven stocks smart moves on Tepper's part? So far, the verdict is mixed.
Both stocks that Appaloosa sold have risen since the end of Q4. Nvidia has soared by nearly 80%, while Alphabet is up close to 6%. Adding to his fund's stakes in Amazon and Microsoft, though, has paid off: Each has jumped by a double-digit percentage thus far in 2024.
I wouldn't be surprised if the valuations of Nvidia and Microsoft eventually catch up with them. However, any sell-off of those stocks would likely only be temporary.
My view is that Tepper -- and other investors -- would be wise to scoop up more shares of all four of these Magnificent Seven stocks on pullbacks. I expect that AI will serve as a major long-term tailwind for each of them.
