Shares of Nvidia (NVDA 1.07%) and Vistra (VST 2.94%) have surged 860% and 700%, respectively, since the beginning of 2023. Both companies have benefited from the artificial intelligence (AI) boom despite operating in very different parts of the economy. But billionaire David Tepper, the hedge fund manager at Appaloosa Management, sold one and bought the other in the third quarter, as detailed below:
- Tepper sold 65,000 shares of Nvidia, reducing his position by 9%. Nvidia no longer ranks among the 25 largest holdings in Appaloosa's portfolio.
- Tepper bought 1.2 million shares of Vistra, starting a new position. Vistra ranks among the 15 largest holdings in Appaloosa's portfolio.
Appaloosa is one of the 15 most successful hedge funds in history as measured by net gains since inception, according to LCH Investments. That makes Tepper a good source of inspiration. But the trades above were made in the third quarter, which ended several months ago. And the next update isn't due until mid-February.
In the meantime, here's a more current look at Nvidia and Vistra.
NASDAQ: NVDA
Key Data Points
Nvidia: The stock David Tepper sold in the third quarter
Nvidia graphics processing units (GPUs) are the industry standard in accelerated computing, a discipline that uses specialized hardware and software to speed up complex data center tasks like training large language models and running artificial intelligence applications. Nvidia has between 70% and 95% market share in AI accelerators, according to Mizuho.
The company is well-positioned to maintain its dominance for two reasons. First, it has built an unparalleled ecosystem of programming tools called CUDA, which includes hundreds of code libraries and pretrained models that streamline AI application development. Second, the company can afford to spend heavily on research and development (R&D) because it makes a tremendous amount of money.
Morgan Stanley analysts recently wrote:
We have seen many threats to Nvidia come and go since 2018 -- something like a dozen start-ups, several efforts from merchant competitors such as Intel and AMD, and several custom designs. Most of those have come up short. Competing with Nvidia, a company that spends over $10 billion per year in R&D, is a difficult feat.
Going forward, Nvidia is targeting two trillion-dollar market opportunities. First, data centers are transitioning from general-purpose infrastructure to accelerated computing, meaning they're supplementing central processing units (CPUs) with GPUs. Second, some data centers will evolve into artificial intelligence factories -- large computing environments purpose-built for AI workloads.
Wall Street forecasts Nvidia's adjusted earnings will grow at 52% annually through fiscal 2026, which ends in January 2026. That makes the current valuation of 53 times adjusted earnings rather cheap. Admittedly, the stock could fall dramatically if the company fails to meet those high expectations. But risk-tolerant investors looking to start or expand a position in Nvidia should consider buying a few shares today.
NYSE: VST
Key Data Points
Vistra: The stock David Tepper bought in the third quarter
Vistra operates in the wholesale and retail electricity markets. The company owns coal, natural gas, nuclear, and renewable energy facilities with a collective generation capacity of 41,000 megawatts, which makes it the largest power producer in the U.S. Vistra also serves about 5 million retail customers and is the largest residential electricity provider in the country.
Earlier this year, Vistra acquired Energy Harbor, which added four nuclear generation facilities to its portfolio, positioning it as the second-largest nuclear power producer in the U.S. That distinction is important because some industry observers believe nuclear power is the most reasonable way to address the growing electricity demand from data centers.
The investment thesis for Vistra centers on increased demand for electricity, driven by industrial reshoring, the electrification of the Permian Basin, and artificial intelligence data centers. The company has a large presence in the PJM (eastern U.S.) and ERCOT (Texas) markets, where peak demand is projected to increase at 1.8% annually and 5% annually, respectively, through 2030. Both figures imply demand will double, compared to the previous decade.
Additionally, Vistra has created substantial value for shareholders through stock buybacks. The company has repurchased 30% of its outstanding shares since the fourth quarter of 2021 at an average price below $29 per share. That's an 85% discount to its current share price of $185. The company plans to spend an additional $2.2 billion on stocks buybacks by the end of 2026.
Wall Street expects Vistra's adjusted earnings to increase at 23% annually through fiscal 2026. Even so, its current valuation of 34 times adjusted earnings looks relatively expensive, versus the historical average.
Most analysts think the stock will fall in the near term. The median 12-month target is $165 per share, which implies 11% downside from its current share price of $185. Prospective investors should stay on the sidelines for now and look for opportunities to buy on the dip.
