David Tepper has never been averse to making big bets. Many of them have paid off handsomely and helped make him one of the wealthiest people on the planet. Tepper's net worth of $20.6 billion landed him at No. 94 among Forbes' ranking of the world's billionaires.
The Appaloosa hedge fund manager isn't one to rest on his laurels either. Tepper just made what's arguably a once-in-a-generation bet on one stock.
A bull in the China shop
You might say that Tepper is a bull in the China shop these days. In the first quarter of 2024, he increased Appaloosa's stake in Chinese online retailer PDD Holdings, which operates Pinduoduo and Temu, by nearly 171%. The billionaire investor upped his hedge fund's holdings of Chinese search provider Baidu by 188%. He also initiated a new position in Chinese e-commerce company JD.com.
However, Tepper invested the heaviest in another Chinese tech company, Alibaba Group Holding (BABA -1.67%). He bought 6.9 million additional shares of Alibaba in Q1. This increased Appaloosa's stake by nearly 159% to over $814 million. Alibaba now ranks as the largest holding in the hedge fund's investment portfolio.
Tepper first bought Alibaba stock in 2014 but quickly exited the position. He invested in the stock in the third quarter of 2015 but again sold all of his shares soon afterward. The billionaire investor repeated this pattern of buying Alibaba but not holding it for very long in 2017 and 2019.
Appaloosa's current position in Alibaba has lasted longer, though. The hedge fund initiated a new position in the stock in the second quarter of 2022. Tepper has bought and sold shares of the Chinese tech company several times since then. But his recent purchase reflects the largest amount he has ever invested in Alibaba in one quarter.
Why Tepper probably likes Alibaba
We can only speculate why Tepper likes Alibaba so much. However, I think there are three reasons that especially stand out.
The first is valuation. Alibaba's share price has plunged roughly 75% below its peak set in late 2020. The stock now trades at a forward earnings multiple of under 9.5. That's nearly unheard of for tech stocks.
Second, Tepper appears to expect the Chinese economy to hold up relatively well. If he didn't, I seriously doubt he would be pouring so much of Appaloosa's money into Chinese stocks.
Third, I suspect Tepper likes Alibaba's growth prospects over the next few years as it hitches its wagon to artificial intelligence (AI). Alibaba chairman Joe Tsai and CEO Eddie Wu wrote to shareholders last month that AI is "the single most powerful element that will change and accelerate the growth of our businesses." Tsai also told the audience at JPMorgan Chase's annual Global China Summit in May, "We're the only company [in China] that both runs a leading cloud business and is competitive in AI."
Is it time to buy Alibaba stock?
With billionaire Tepper investing so heavily in Alibaba, is it time for other investors to buy the stock? Maybe, but not for everyone.
Risk-averse investors should probably steer clear of Alibaba for now. China's economic problems could be worse than they appear. Economist and Nobel laureate Paul Krugman believes that the country's economic model isn't sustainable. Both President Joe Biden and presumptive GOP presidential nominee Donald Trump favor increased tariffs on China, which could further complicate matters.
However, aggressive long-term investors willing to accept potentially high volatility could find Alibaba attractive. The company could have great growth prospects, especially from hosting AI applications on its cloud platform. Tepper's once-in-a-generation bet could be one that other investors could want to get in on, too.
