The S&P 500's (^GSPC +0.55%) average annual total return over the long term has been around 10%. Hedge fund manager David Tepper has achieved an average annual return of more than 25% since the inception of his firm, Appaloosa Management, in 1993.
Today, Tepper's net worth tops $21 billion. Clearly, he has made better decisions than most investors throughout much of his career. But does the billionaire investor know something now that the rest of Wall Street doesn't?
Selling several top AI stocks
The so-called "Magnificent Seven" stocks skyrocketed in 2024, and Appaloosa Management profited from their momentum, as several of those giant tech companies were among its top holdings.
However, the Magnificent Seven has been the "Lagnificent Seven" so far this year. All seven stocks have fallen. Six are down by double-digit percentages, and three of those have plunged by more than 20% year to date.
Tepper might have seen the writing on the wall to some extent. In the fourth quarter of 2024, he reduced Appaloosa's stake in Amazon by roughly 18.8%. He slashed the fund's position in Meta Platforms by 21.6%. The notable exception to this activity was his purchase of around 55,000 shares of Nvidia. He also left Appaloosa's position in Microsoft untouched, and sold only one share of Google parent Alphabet.
His selling wasn't limited to the Magnificent Seven, though. The billionaire also reduced Appaloosa's exposure to other artificial intelligence (AI) stocks, selling 11% of its stake in Oracle, 60% of its stake in Intel, and 100% of its position in Adobe.
A bull in the China shop
But Tepper also bought plenty of stocks in Q4. Interestingly, some of his biggest purchases had a common theme.
He increased Appaloosa's position in Alibaba Group Holding (BABA +1.72%) by 18.4%. He added another 1% or so to its stake in PDD Holdings (PDD +1.36%). He boosted Appaloosa's ownership of JD.com (JD +1.29%) by 43.4% and of Baidu (BIDU +3.44%) by 7.2%. What's the common denominator for these stocks? They're all Chinese technology companies.
NYSE: BABA
Key Data Points
Alibaba is sometimes called "the Amazon of China." PDD shares some similarities with Amazon, thanks in part to its Temu online marketplace. Some refer to Baidu as "the Google of China." JD.com initially focused solely on e-commerce for Chinese companies, but has since expanded into other areas including logistics and healthcare.
Like the Magnificent Seven companies, all of these Chinese tech companies are investing heavily in AI. Alibaba will soon launch a new version of its flagship Qwen large language model. PDD uses AI in its Pinduoduo and Temu apps. JD.com uses AI throughout its operations. Baidu, like Alibaba, is a leading cloud services provider with extensive AI offerings.
NASDAQ: PDD
Key Data Points
Is Tepper onto something?
Tepper's additional investments in these Chinese tech stocks are already paying off. That's especially true for Alibaba: Its share price has skyrocketed more than 50% year to date. PDD and JD.com stocks have jumped by double-digit percentages. Baidu is lagging behind the others, but has still delivered a solid gain this year. President Trump's tariffs shouldn't affect any of these companies much, if at all.
One great thing about these stocks is that they're relatively cheap. Alibaba's forward price-to-earnings ratio is 11.4. PDD trades at 8.5 times forward earnings. JD.com and Baidu are even more attractively valued with forward earnings multiples of 7.7 and 8.1, respectively.
However, the consensus analyst price targets for all four stocks are well above their current share prices. It seems that, at least in this case, Tepper doesn't know something that Wall Street doesn't.
