Billionaire David Tepper's track record in the stock market is nothing short of remarkable. According to CNBC, the current owner of the Carolina Panthers pro football team launched his hedge fund Appaloosa Management in 1993 and generated annual returns of at least 25% for decades. Today, Tepper still runs Appaloosa, but it is now a family office, where he manages his own wealth.
The market is always curious about what Tepper and his fund are up to. In the third quarter, Appaloosa dumped its stake in Oracle and loaded up on a sector that Wall Street expects to outperform over the next year.
Image source: Getty Images.
Oracle faded after a strong rally
The tech company Oracle is not one of the "Magnificent Seven," but it has emerged as a strong beneficiary of artificial intelligence (AI), thanks to its specialized data centers that contain huge clusters of graphics processing units (GPUs) to train large language models (LLMs) that power AI.
In September, the company reported strong earnings for the first quarter of its fiscal 2026, along with blowout guidance. Remaining performance obligations increased 359% year over year to $455 billion, as it signed data center agreements with major hyperscalers, including OpenAI.
Management then said it expects to generate $18 billion in cloud infrastructure revenue in fiscal 2026, followed by $32 billion, $73 billion, $114 billion, and then $144 billion annually over the next four fiscal years, in that order. The stock popped about 40% at the time.
But Oracle has largely retraced these gains, as concerns about AI valuations and other obstacles proliferated. Reports about higher costs for its AI infrastructure build-out and thinner margins have contributed to the struggles. It appears that Tepper has concerns about the company as well because Appaloosa sold all of its 150,000 shares in the third quarter.
Buying the sector that Wall Street is bullish on
In the third quarter, Appaloosa piled into the financials sector, snapping up shares and initiating positions in several regional banks and other related financial companies. Its purchases were:
- 925,000 shares of the bank core-processing technology company Fiserv.
- 1.4 million shares in Truist Financial.
- Over 2 million shares in KeyCorp.
- 600,000 shares in Citizens Financial Group.
- 462,500 shares in Comerica.
- 195,000 shares in Western Alliance Bancorp.
- 285,000 shares in Zions Bancorporation.
The financials sector has somewhat struggled this year, with both the large-bank Financial Select Sector SPDR Fund and the State Street SPDR S&P Regional Banking ETF trailing the broader market. But many Wall Street analysts are bullish on financials. Morgan Stanley's chief U.S. equity strategist, Mike Wilson, recently said his team is overweight in financials, while SoFi's head of investment strategy, Liz Thomas, has also remained bullish on the sector.
NYSEMKT: KRE
Key Data Points
I would agree that the outlook for financials is strong. Several of the regional banks that Tepper invested in may ultimately be acquired, as regional banks require significantly more scale to compete with the large money-center banks. In fact, Comerica was acquired in October, so Tepper and Appaloosa may have enjoyed a nice premium on that one.
Furthermore, banks are poised for deregulation. Specifically, the Federal Reserve may lower regulatory capital requirements, the capital that banks must hold for unexpected losses.
The less capital that banks are required to hold, the more they can deploy into lending to boost returns, as well as shareholder distributions. Since the Great Recession, bank lending has really been minimal, which is part of what led to the rise of private credit. Lower capital requirements could lead to increased bank lending.
While historically strong credit is likely to normalize some, there is no evidence that credit quality in the banking system has experienced significant deterioration. For all of these reasons, I am bullish on the sector.
