David Tepper, CEO of Appaloosa Management, is one of the most famous hedge fund managers working today.
Mr. Tepper’s net worth is $21.3 billion, making him one of the richest people in the world. He is known for taking a contrarian approach to investing, zigging while other investors zig.
Mr. Tepper’s recent moves are a perfect example of that philosophy. In the second quarter, Appaloosa Management sold its Nvidia stock. (NASDAQ:NVDA)probably the most popular stock on the market, stacking up against some of the most shabby and unpopular stocks available. Let’s take a closer look.
Partnership with Nvidia
Mr. Tepper’s fund sold 3.73 million Nvidia shares in the second quarter, or about $450 million worth of top artificial intelligence (AI) stocks. That wasn’t the only stake in Appaloosa. But that percentage was more than 84%, leaving the fund with only 690,000 shares, or about $90 million worth of shares.
Appaloosa’s boss has not commented directly on the Nvidia sale, but he is one of several billionaire hedge fund managers planning to sell in the second quarter. Many people seem to believe that the so-called easy money came from Nvidia. Billionaire Stanley Druckenmiller also recently sold the stock, saying the market now recognizes what he recognized in the early days of the AI boom.
For Tepper, the second quarter sales continued the pattern. He sold 3.48 million Nvidia shares in the first quarter, during which time the stock price soared.
Appaloosa also sold a number of other semiconductor stocks in the second quarter, indicating a broader rotation out of the sector. Among the companies sold were Intel and Advanced Micro Devices. It also reduced its positions in “AI stocks” such as Amazon, Oracle, Microsoft, and Metaplatform.
But what Tepper was buying instead was even more surprising.
Linked to Chinese stocks
Chinese stocks have struggled over the past five years, plummeting since the peak of the pandemic. A combination of the Chinese government’s crackdown on the tech sector and the slow recovery after the coronavirus pandemic has left the sector lagging.
In fact, as the chart below shows, the iShares MSCI China ETF is down 12% over the past five years, losing out to the S&P 500, which has nearly doubled during that time.
But Appaloosa appears to be sensing opportunity in China, as the fund bought a number of Chinese stocks in the second quarter.
Appaloosa added over 1 million shares of the Kraneshares CSI China Internet ETF. (NYSEMKT:KWEB)counts Tencent and Alibaba as its top two holdings.
The fund also added more than 660,000 shares of leading e-commerce stock JD.com and more than 565,000 shares of iShares China Large Cap ETF. (NYSEMKT:FXI)380,000 shares of KE Holdings, a Chinese real estate services company.
the story continues
Although Appaloosa did reduce his Alibaba stake, Chinese e-commerce stocks remained his largest holding, accounting for 12.2% of Appaloosa’s portfolio.
The fund made its first purchase of Alibaba stock in the second quarter of 2022. He has acquired other Chinese stocks recently, mostly within the last year.
Why Tepper is acquiring China
Although Tepper did not explain his bullish stance on China, he likely believes the sector is oversold and ripe for a recovery.
Anyone making a bullish bet on China got some good news on Tuesday, when Chinese stocks soared on a surprise interest rate cut, the government’s biggest effort to stimulate the economy since the pandemic.
In fact, Chinese stocks soared on this news. The iShares MSCI China ETF rose 9% in afternoon trading, perhaps indicating more upside potential for the sector.
Should I follow Tepper’s Appaloosa into China?
Although China’s economy remains generally weak, the latest interest rate cut could signal that the government plans to take further steps to boost China’s economy. Still, most Chinese stocks, such as Alibaba and JDCom, haven’t shown impressive growth rates in recent quarters, which is why they’ve lagged overall.
Tepper and his team at Appaloosa seem to believe that these stocks have bottomed out and that some good news could prompt a reversal. This theory seems plausible, but investors have been saying it for years, and China continues to struggle.
Despite the rate cuts, investors still want to be cautious about China. The situation with the Chinese government is uncertain, the economy is lagging, and new chip export restrictions by the United States and other countries could further impede China’s recovery.
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Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Jeremy Bowman holds positions at Amazon and Meta Platforms. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, JD.com, Meta Platforms, Microsoft, and Oracle. The Motley Fool recommends Alibaba Group and Intel and recommends the following options: A January 2026 $395 long call on Microsoft, a January 2026 $405 short call on Microsoft, and a November 2024 $24 short call on Intel. The Motley Fool has a disclosure policy.
Should I sell Nvidia? Buy China? The first edition of “That’s What This Billionaire Investor Does” was published by The Motley Fool
