David Tepper is among the elites when it comes to investing.
The billionaire launched his hedge fund, Appaloosa Management, in 1993 with $57 million in capital and grew it to roughly $14 billion in assets by 2019, at which time he converted it into the family office he still runs today.
Tepper has made some prescient calls during his time as a fund manager, particularly in distressed situations, when he would buy the debt of struggling companies or those on the brink of default for pennies on the dollar, such as Enron and WorldCom.
Appaloosa would ultimately be repaid in the bankruptcy process or if the company reorganized, leading to tremendous gains.
These days, when Tepper makes a big move, the market takes notice. In the first quarter of the year, Appaloosa sold most of its Microsoft stake and initiated a new position in an artificial intelligence (AI) memory stock that's up an incredible 4,100% over the past year.
Image source: Getty Images.
Turning on Microsoft in a tough quarter
According to filings, Appaloosa sold 82% of its Microsoft position in the first quarter.
Tepper was not alone, as Microsoft stock had its worst quarter since 2008, falling 23%. Microsoft got hit from a few different angles in the quarter, including AI concerns and worries about some of its more software-oriented businesses.
In the first quarter, AI stocks came under pressure as investors grew concerned about valuations and the intensity of capital expenditures.
For Microsoft specifically, investors are also worried about the company's AI digital assistant, Copilot, which has failed to inspire as much as some of the most popular large language models and productivity assistants have.
NASDAQ: MSFT
Key Data Points
At the end of its most recent quarter, Copilot had 20 million paid enterprise seats.
The other concern had more to do with the broader software sector, as investors worry that previous software company moats could face much more competition due to AI.
This could potentially impact Microsoft 365, the company's suite of office tools, including Word, Excel, and PowerPoint, that essentially power the business world.
Microsoft 365 has over 450 million paid subscribers and has always enjoyed a powerful moat in the space.
Ultimately, Microsoft is still benefiting from AI in other ways, like through its Azure cloud business, and the company is pouring tens of billions into AI, so I think it will be OK in the long term, even if it faces more pressure in the near term.
A bet on NAND and the demand for memory in the AI ecosystem
Tepper and Appaloosa's only new position in the quarter was Sandisk (SNDK +2.52%), which is now operating as an AI memory company. Tepper went in heavy. At the end of the first quarter, the Sandisk position was valued at nearly $179 million and consumed 3% of Appaloosa's total portfolio.
Critical components of the AI supply chain have become more imperative as AI scales. One such component is memory, which is largely responsible for feeding data to graphics processing units (GPUs).
There are two types of memory: NAND flash memory and dynamic random-access memory (DRAM).
NAND plays a key role in permanently storing data, so AI models can regularly access the parameters used during training. Naturally, as models get bigger, have more parameters, and are used by more people, they require more storage, creating tremendous demand for NAND.
That's why Sandisk is up over 4,100% in the past year.
NASDAQ: SNDK
Key Data Points
UBS analyst Timothy Arcuri, in a recent research note, said NAND supply is expected to be constrained until the end of 2027.
According to a recent report from the market research firm Counterpoint, Sandisk held 13% of the global NAND revenue market share at the end of the first quarter of 2026, making it one of six major players in the space.
Furthermore, the total global NAND market reached $46 billion in revenue, which is up double from the prior quarter.
Now, investors should understand that memory companies have long been considered cyclical because it typically takes a while to match supply with demand. Companies like Sandisk are also going to be heavily dependent on the AI cycle, so I'd be a little bit cautious right now.
It's probably better to keep it on your watch list and look for potential pullbacks.
