If you're an optimist, it's a great time to be investing on Wall Street. For more than two years, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have been virtually unstoppable.
The stock market's success can be attributed to a host of factors, which include the artificial intelligence (AI) revolution, Donald Trump returning to the White House, the resiliency of the U.S. economy, and the prevailing rate of inflation backing off from four-decade highs.
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Billionaire money managers have also taken note of Wall Street's numerous catalysts. Many prominent billionaires have been adding to, or continue to steadfastly hold, the most-influential companies that have led this rally. We know this, because required Form 13F filings with the Securities and Exchange Commission allow investors to track the buying and selling activity of top-tier money managers.
However, billionaire David Tepper of Appaloosa isn't like most asset managers.
David Tepper has been dumping shares of six trillion-dollar stocks
Based on the last four 13F filings from Appaloosa, which covers the trading activity of Tepper and his team from Oct. 1, 2023 through Sept. 30, 2024, shares of six out of the 10 publicly traded companies in the U.S. to have reached a trillion-dollar market cap were sent to the chopping block (share totals are cumulative):
- Meta Platforms (META +2.32%): 1,325,000 shares sold
- Taiwan Semiconductor Manufacturing (TSM +0.55%): 600,000 shares sold
- Microsoft (MSFT +1.08%): 665,000 shares sold
- Nvidia (NVDA +1.63%): 400,000 shares sold
- Alphabet (GOOGL +1.11%)(GOOG +0.98%): 868,036 Class C (GOOG) shares sold
- Amazon (AMZN +1.96%): 550,000 shares sold
The logical explanation behind this selling activity in a half-dozen of Wall Street's most-important businesses is benign profit-taking. All six of these companies have handily outperformed the benchmark S&P 500 over the trailing-five-year period, with AI being the clearest upside catalyst.
Then again, Tepper and his team may be signaling their skepticism of the AI revolution with these sales. Though nothing suggests artificial intelligence won't be a long-term growth driver for corporate America, history has shown that investors regularly overestimate the early stage adoption and utility of next-big-thing innovations. If an AI bubble were to form and burst, direct players like Nvidia, which is the premier provider of graphics processing units (GPUs) used in AI-data centers, and world-leading chip fabricator Taiwan Semiconductor, would likely be hit the hardest.
Tepper's actions may also indicate displeasure with stock valuations in a historically pricey market. Prior to the AI-driven sell-off earlier this week, the S&P 500's Shiller price-to-earnings (P/E) ratio was effectively at its third-highest reading during a continuous bull market spanning 154 years. Historically, valuation premiums of this magnitude have eventually been followed by declines of at least 20% in the S&P 500.
In terms of forward P/E ratios, Microsoft is valued at a 13% premium to its trailing-five-year average. Meanwhile, Meta Platforms' forward P/E is 21% above its average forward multiple over the last five years. For Tepper, who typically focuses on value stocks and distressed security opportunities, Wall Street's trillion-dollar stocks no longer fit the mold.
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Tepper is piling into three stocks that share common themes
Although Tepper's selling at Appaloosa has been more pronounced of late, there's still some selective purchasing being done. Based on the last four 13Fs (same timeline as above), Appaloosa's billionaire chief has aggressively bought shares of (share totals are cumulative):
- Alibaba Group (BABA +1.11%): 6,400,000 shares purchased (178% year-over-year increase)
- JD.com (JD +0.60%): 5,625,000 shares purchased (336% year-over-year increase)
- Baidu (BIDU 1.81%): 760,000 shares purchased (114% year-over-year increase)
The obvious trait these companies share is their China-based roots. China's economy has stumbled since lifting its stringent COVID-19 mitigation measures in December 2022. While working out these supply chain kinks has weighed on China stocks, the country's burgeoning middle class offers the prospect of superior long-term growth among developing countries.
NYSE: BABA
Key Data Points
Alibaba, JD, and Baidu are also leaders within their respective industries. Alibaba and JD are No.'s 1 and 2 in terms of online retail market share in the world's second-largest economy. As for Baidu, it's been the undisputed top dog in internet search engine market share in China dating back more than a decade.
All three businesses are counting on AI to be a significant long-term growth driver, as well. Alibaba Cloud is the leading provider of cloud infrastructure services in China, with an estimated 36% share of domestic spending as of the end of September, per Canalys. Baidu's AI Cloud and JD Cloud also offer a wide range of services and real-world applications. The margins associated with cloud services are typically leaps and bounds ahead of those tied to online retail sales and search-related ads. In other words, artificial intelligence is the ticket for this China-based trio to really ramp up margins.
Additionally, Alibaba, JD, and Baidu sport cash-rich balance sheets. Sitting on sizable net-cash positions allows these companies to aggressively invest in higher-growth initiatives, as well as repurchase their own stock. For companies with steady or growing net income, buybacks can increase earnings per share and make a company more fundamentally attractive to investors.
NASDAQ: JD
Key Data Points
Finally, Alibaba, JD, and Baidu likely speak to Tepper's desire to seek out deep-value stocks. With the S&P 500 pushing the envelope to the upside on the valuation front, Alibaba, JD, and Baidu clock in with respective forward P/E multiples of 9.2, 9, and 9. These single-digit forward P/E ratios get even cheaper if you back out each company's net-cash position.
In a market where cheap stocks are difficult to come by, China's cash-rich trio hit the bullseye with Tepper.
