Important data releases aren't hard to come by on Wall Street. For roughly six weeks every quarter, an overwhelming majority of the stock market's most-influential businesses report their operating results. Were this not enough, economic data is announced Monday through Friday. All of this news can make it easy for something important to slip through the cracks.
For instance, while most investors were keeping a watchful eye on the July inflation report in mid-August, they may have missed the Aug. 14 deadline for institutional money managers to file Form 13F with the Securities and Exchange Commission (SEC). A 13F provides an under-the-hood look at which stocks Wall Street's most prominent money managers purchased and sold in the latest quarter (in this case, the June-ended quarter).
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As you can imagine, no asset manager is more-closely followed than Warren Buffett. Since taking the reins at Berkshire Hathaway nearly 60 years ago, he's led his company's Class A shares to an aggregate gain that's nearing 5,600,000%. But there are other superstar money managers beyond the Oracle of Omaha who rightly garner attention.
Billionaire David Tepper of Appaloosa Management is a perfect example. Tepper, who co-founded Appaloosa more than three decades ago, is known for his contrarian views and outsized investment returns.
Although Tepper runs a relatively concentrated portfolio that typically holds around three-dozen securities, he and his team are regularly adding to and reducing these existing positions. Based on Appaloosa's 13Fs, Tepper has been a decisive seller of Wall Street's hottest artificial intelligence (AI) stock, Nvidia (NVDA +4.27%), and has been piling into what's historically been one of China's most-consistent growth stocks.
Tepper sent most of Appaloosa's Nvidia shares to the chopping block
There's no denying that AI is a mammoth opportunity for corporate America and Wall Street. In Sizing the Prize, the analysts at PwC predicted AI would add a staggering $15.7 trillion to the global economy by 2030. But this hasn't stopped billionaire David Tepper from cashing in his chips.
At the end of September 2023, Tepper's fund held 10.25 million shares of Nvidia. Note, this figure has been adjusted to account for Nvidia's historic 10-for-1 stock split, which occurred after the close of trading on June 7, 2024. But as of June 30, Appaloosa's stake in the company had been whittled down to just 690,000 shares, representing a reduction of approximately 93%!
NASDAQ: NVDA
Key Data Points
With Nvidia becoming the largest publicly traded company and adding $3 trillion-plus in market value since the start of 2023, ringing the register and locking in gains is certainly one viable explanation for this selling activity. As noted, Tepper and his team are active traders who regularly add to and pare down their fund's positions.
But there may be more than just profit-taking behind this 93% reduction.
History offers perhaps the most ominous warning for Nvidia and its shareholders. Every next-big-thing innovation and technology looking back three decades has navigated its way through an early stage bubble, including the internet. This is a function of investors overestimating how quickly a game-changing technology or innovation will be adopted by consumers/businesses. It takes time for new technologies to mature, and I don't anticipate artificial intelligence being the exception to this unwritten rule. If we witness a bursting of the AI bubble, Nvidia would undoubtedly be hit hard.
Another obvious concern is the steady uptick in competition for Nvidia. Even though it should have no trouble maintaining its commanding market share lead in AI-graphics processing units (GPUs), the arrival of external and internal competition will be noticeable.
In particular, many of Nvidia's largest customers by net sales are developing AI-GPUs for use in their respective data centers. Simply maintaining its computing advantage is unlikely to be enough to keep Nvidia's hardware from losing valuable data center "real estate" to less-costly in-house chips.
Lastly, Tepper and his advisors may be turned off by the regulatory headwinds Nvidia has had to contend with. In 2022 and 2023, U.S. regulators restricted shipments of high-powered AI chips and equipment to China, which is one of Nvidia's top-dollar markets.
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David Tepper is piling into this key cog of China's economy
But while Tepper was dumping shares of Nvidia, 13Fs show he was an active buyer of a key player in China's economy. I'm talking about e-commerce colossus JD.com (JD 2.40%).
When 2024 began, Tepper's fund didn't hold a single share of JD. But as of the midpoint of 2024, 13Fs show that JD had become Appaloosa's 19th-largest holding by market value ($111.4 million), with 4,310,600 shares held.
There is, admittedly, a drawback to buying China stocks. Specifically, the regulatory uncertainty and control Chinese regulators exert over domestic businesses. This uncertainty often translates into China stocks trading at lower forward earnings multiples than U.S.-based stocks in the same industry.
Despite this worry, Tepper has a number of reasons to be excited about JD's future.
On a macro basis, China's rapidly growing middle class can be a long-term catalyst for its e-commerce industry. Whereas online retail sales growth has slowed in the U.S., it's still in a clear growth phase in the world's No. 2 economy.
NASDAQ: JD
Key Data Points
Although the margins associated with online retail sales are typical unimpressive, JD has a leg up on its competition within China. Alibaba, which is another key holding for Tepper's Appaloosa, is the No. 1 e-commerce company in China. However, it primarily relies on third-party sellers within its online marketplace.
By comparison, JD.com is structured similar to Amazon in that it controls the inventory and logistics of getting products to consumers, once ordered. While this is a bit more complex than being a third-party marketplace, it affords JD more opportunity to control and, ultimately, boost its operating margin over the long run.
The other selling point that may have enticed Tepper and his team to pile into JD is the company's exorbitant treasure chest. It closed out the June quarter with $28.8 billion in combined cash, cash equivalents, short-term investments, and restricted cash, or a little north of $20 billion in net cash, excluding various debts. When Tepper was purchasing shares of JD during the first-half of the year, roughly half of its market cap was derived from its cash.
With China's economy expected to deliver a superior long-term growth rate, and JD valued at a reasonably low 10 times forward-year earnings, Tepper appears to have found an amazing deal hiding in plain sight.
