Appaloosa Management's founder, David Tepper, has long been known for his impressive and consistent returns on Wall Street. The billionaire investor and prominent hedge fund manager has built a name for investing in distressed debt and "deep-value" equity by taking stakes in companies whose debt or share prices have been negatively affected by excessive investor fears.
With his exceptional investment instincts and ability to find opportunities during market stress, he has earned billions in profits. Tepper's trade in distressed bank stocks during the 2008 financial crisis has positioned him as a "master of contrarian investing."
Hence, it is not surprising that Appaloosa Management's exit from enterprise giants Intel (INTC +7.62%) and Oracle (ORCL +0.09%) in the third quarter has raised eyebrows. Instead, the fund has picked a new position in artificial intelligence (AI) infrastructure player Advanced Micro Devices (AMD 2.02%) and dramatically increased its stake in Nvidia (NVDA +0.75%).
The billionaire investor seems to be taking advantage of the fears surrounding a potential AI bubble. Here's what we can learn more from these moves.
Image source: Getty Images.
Sale of Intel and Oracle
Like all investment managers overseeing portfolios of over $100 million, Appaloosa files a quarterly Form 13F with the U.S. Securities and Exchange Commission (SEC). While these filings do not reveal Tepper's actual investment rationale or strategy, they give investors a snapshot of the securities he has accumulated or abandoned at the end of the fiscal quarter.
Tepper has not provided any public explanation for his individual stock decisions. However, based on his overall investment strategy, we can infer his motives for leaving Intel and Oracle.
NASDAQ: INTC
Key Data Points
Although Intel has been working on its foundry-focused turnaround in the past two years, this transition has been slow and capital-intensive. The company has also lost market share to AMD in data center and PC markets. While Intel's valuation is not expensive, it no longer seems to be aligned with Tepper's investment style. The legendary investor believes that even a cheap company without solid growth catalysts may continue to lose value.
On the other hand, Appaloosa may have preferred booking profits on Oracle, as it has already seen a solid share-price run, backed by exceptional demand for its cloud and AI database offerings. However, the stock has given back some of its gains amid concerns about future capex requirements, high debt, and a rich valuation.
Hence, while Oracle is not a poor investment, Tepper may have sold it to free up capital for picking other high-growth opportunities. His strategy of concentrated investing also aligns with this thesis.
Investing in AI infrastructure stocks
Tepper has built a nearly $154 million stake in AMD, accounting for almost 2% of Appaloosa Management's total portfolio. With global semiconductor sales estimated to reach $1 trillion by 2030 and AMD being the only major GPU supplier besides Nvidia in the AI market, the company is well positioned to grow rapidly in a market hungry for additional compute capacity.
NASDAQ: AMD
Key Data Points
AMD is already seeing robust demand for its MI300, MI325, and MI350 GPU series as well as for its server CPUs from hyperscalers and large enterprises. In the third quarter, the company's data center revenues were up 22% year over year to $4.3 billion. Coupled with the impressive roadmap for its upcoming high-performance, cost-effective MI400 GPU series, which includes multi-year supply partnerships with Oracle and OpenAI, Tepper seems even more confident about the long-term growth potential of this stock.
Tepper also added almost 150,000 shares of Nvidia, which now makes up about 4.8% of Appaloosa's total portfolio. Nvidia remains the backbone of the ongoing AI infrastructure buildout, with data center revenues growing 66% year over year to $51.2 billion in the third quarter (ending Oct. 26).
NASDAQ: NVDA
Key Data Points
Management has reiterated that Nvidia has already shipped $150 billion worth of orders for Blackwell and Rubin systems, while the remaining $350 billion in orders are scheduled to be shipped by the end of calendar year 2026. The company's recent deals with Humain, a subsidiary of Saudi Arabia's Public Investment Fund, and with Anthropic are further expanding the company's opportunity beyond $500 billion.
With the company well-positioned to capture a significant share of the $3 trillion to $4 trillion annual AI infrastructure opportunity by 2030, Tepper seems to be willing to tolerate short-term volatility due to AI fears for substantial long-term gains.
What should investors do now?
Although investors may prefer not to copy Tepper's trades, especially amid fears of a potential AI bubble, they can keep an eye on these stocks if they believe in the long-term AI story.
Both Nvidia and AMD continue to benefit from the explosive demand for compute capacity. However, Nvidia is trading at 44.6 times earnings, while AMD is trading at 105.9 times earnings. The expensive valuation implies that some portion of future upside is already priced in.
Hence, it makes sense for retail investors to opt for dollar-cost averaging strategy and gradually build a substantial position in these two AI stocks.
