Billionaire David Tepper of Appaloosa Management is known for his diversified investment strategy, which spans technology stocks and undervalued cyclical sectors poised for rapid recovery. He acts decisively when opportunities present and is not afraid to cut winning positions if he thinks the upside is priced in.
His latest move: reducing stakes in Broadcom (AVGO +2.60%) and Meta Platforms (META +1.70%) and adding 755,000 shares -- a 279.6% increase in its stake in Taiwan Semiconductor Manufacturing (TSM 1.32%) in the second quarter of 2025.
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This decision does not take Tepper away from the artificial intelligence (AI) market. Instead, it has increased his exposure to a company that plays a critical role in building the global AI infrastructure. Since TSMC produces the world's most advanced chips for all major technology titans, including Nvidia, Advanced Micro Devices, Apple, Alphabet, and Meta Platforms, no one can scale AI models or data centers without its foundries.
Tepper has correctly identified that chip supply is the key bottleneck, which allows TSMC to enjoy high pricing power. Thus, he rightly seems to believe that there is money to be made in this investment in the long run.
NASDAQ: AVGO
Key Data Points
Why Tepper cut his stakes in Broadcom and Meta
Although Broadcom and Meta Platforms are both high-quality stocks, Tepper's moves in the second quarter suggest he sees limits ahead. Broadcom boasts a robust portfolio that includes custom AI chips, high-performance networking hardware, and enterprise software solutions -- playing a critical role in building global AI infrastructure.
Analysts expect the company's revenue to grow year over year by 21% to $15.8 billion, and non-GAAP (adjusted) earnings per share to rise 33.9% to $1.66 in the third quarter of its fiscal 2025 (ending Aug. 3). Still, Appaloosa has sold its entire Broadcom stake during the second quarter, suggesting Tepper prefers exposure to a company that has control over the chip supply.
A leading social media and digital advertising giant, Meta Platforms continues to invest heavily in AI infrastructure. Its daily user base now exceeds 3.4 billion. The company's revenue soared 22% year over year to $47.5 billion, while operating income surged 38% to $20.4 billion in the second quarter of 2025.
Yet advertising remains a cyclical business heavily reliant on the overall state of the economy. At the same time, heavy capital expenditures can prove to be a drag on the company's stock in the near term. Tepper has sold 150,000 shares of Meta in the second quarter, reducing the stake by 27%.
NASDAQ: META
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Why TSMC can be a better choice
Tepper's shift to TSMC in the second quarter indicates that he aims to increase his portfolio's exposure to the advanced chip manufacturing segment.
The numbers reinforce the investment thesis. In the second quarter of 2025, revenue rose 54% year over year to $30.1 billion, while operating margin improved 40 basis points to 49.6%. TSMC now expects about 30% revenue growth for 2025 in U.S. dollars.
Demand for high-performance computing chips has been a key driver, accounting for nearly 60% of sales. Smartphones contributed 27% of the sales, while automotive and the Internet of Things (IoT) each contributed 5% of the sales, respectively. Advanced nodes (7-nanometer and below) accounted for 74% of wafer revenue. This shows the rapidly expanding demand for advanced chip manufacturing capabilities, especially in the AI market.
Management has noted that the supply for 3nm and 5nm chips is very tight compared to the explosive demand from the AI market. The company is converting or adjusting capacity from older nodes to newer ones -- initiatives made possible thanks to its strategy of building multiple fabs together in a cluster in one location, which share tools and infrastructure (giga fab cluster).
Its advanced packaging technology, Chip-on-Wafer-on-Substrate (CoWoS), is also seeing demand far more than available supply. The mismatch is so significant that the company is currently focusing only on "narrowing the gap" and not on balancing supply and demand. This implies that the company will be enjoying significant pricing power for the foreseeable future.
NYSE: TSM
Key Data Points
TSMC is also innovating at a rapid pace to meet the increasing performance and cost reduction needs of AI data centers. The company plans to commence volume production of 2nm chips in the second half of 2025. The 2nm node is also more profitable than the 3nm one. The 2nm chips are expected to be faster and more power-efficient than the 3nm ones.
The company is also gearing up for volume production of N2P chips and A16 chips, which are expected to offer further performance and power benefits over 2nm chips in the second half of 2026. Volume production on an even more advanced node, A14, is planned for 2028. All these initiatives will ensure TSMC's continued dominance in the global foundry business for several years.
Despite its many strengths, TSMC trades at 23.8 times forward earnings -- better than the median 31.5 multiple for the overall technology sector. Considering TSMC's strong financials, robust business model, and reasonable valuation, the stock appears well-positioned for rapid growth in the coming years. Hence, retail investors should consider buying a stake in this Tepper pick in 2025.
