David Tepper appears to be firmly on the artificial intelligence (AI) bandwagon. All of his top-10 holdings have close AI connections.
The billionaire investor doesn't seem to be as bullish about some of those AI stocks as he once was, though. In the first quarter, Tepper sold shares of Amazon, Google parent Alphabet, Microsoft, Facebook parent Meta Platforms, and Nvidia. However, he bought these three AI stocks hand over fist.
1. Alibaba Group Holding
Alibaba Group Holding (BABA 1.49%) now ranks as the largest holding in Tepper's Appaloosa Management portfolio. The Chinese tech company leaped past Amazon, Microsoft, Meta, and Nvidia to take the top spot after Tepper increased his stake by nearly 159% in Q1.
NYSE: BABA
Key Data Points
Tepper's move has already paid off. Alibaba stock fell nearly 7% in the first quarter of 2024. However, it's now up close to 11% year to date after jumping 17% in April and May.
Why did the billionaire investor decide to significantly boost Appaloosa's position in Alibaba? Valuation was almost certainly a key factor. Alibaba's shares trade at under 10.5 times forward earnings. The stock's price-to-earnings-to-growth (PEG) ratio is a low 0.82.
Tepper also probably likes Alibaba's strategy to return to growth. The company's Q1 results show this strategy is bearing fruit. Revenue jumped 7% year over year in Q1. Alibaba also recently shook up the Chinese AI services market by slashing prices for its AI offerings.
2. Oracle
Appaloosa Management increased its position in Oracle (ORCL 1.18%) by nearly 74% in Q1. This big purchase moved Oracle into the eighth spot in the hedge fund's portfolio.
NYSE: ORCL
Key Data Points
Oracle enjoyed solid momentum throughout most of Q1. The stock is up almost 20% so far this year after rebounding from an April pullback. Even with this nice gain, though, Oracle's forward-earnings multiple is under 20 -- less expensive than most megacap AI stocks.
I suspect Tepper especially finds Oracle's cloud business appealing. The company's cloud revenue soared 25% year over year in its latest quarter to $5.1 billion, representing 38% of total revenue.
AI continues to serve as a major growth driver for Oracle's cloud unit. CEO Safra Catz said in the fiscal Q3 earnings press release that demand for the company's Gen2 AI infrastructure "substantially exceeds supply -- despite the fact that we are opening new and expanding cloud [data-centers] very, very rapidly."
3. PDD Holdings
PDD Holdings (PDD 3.50%) ranks behind Oracle as the ninth-largest holding in Appaloosa Management's portfolio. Tepper bought more than 1.3 million shares of the Chinese tech stock in Q1, increasing his hedge fund's stake by roughly 171%.
NASDAQ: PDD
Key Data Points
Many American investors might be unfamiliar with PDD. The company operates Pinduoduo, a popular e-commerce platform in China. It also runs Temu, a relatively new online marketplace targeting global markets, including the U.S. Like its American counterpart, Amazon, PDD invests heavily in AI technology.
PDD had a rough Q1 with its shares sinking nearly 25% at one point. However, the stock has bounced back strongly in recent weeks. This rebound was fueled in part by PDD's positive Q1 results. Revenue soared 131% year over year with adjusted earnings more than tripling year over year.
Tepper no doubt likes PDD's valuation. Shares trade at 16.4 times forward earnings with a PEG ratio of 0.71. The billionaire could also view PDD's Temu strategy as a great long-term growth driver.
Better than Amazon, Alphabet, Microsoft, Meta, and Nvidia?
Are Alibaba, Oracle, and PDD better picks than Amazon, Alphabet, Microsoft, Meta, and Nvidia? Tepper seems to think so -- or at least did in Q1. One thing is certain: These three stocks are cheaper than the five Magnificent Seven stocks. That could appeal to other investors with the overall stock market priced at a premium.
I'm somewhat skittish about investing in Alibaba and PDD because of uncertainties about the potential actions of the Chinese government. However, I think all eight stocks should be big winners over the long term.
