David Tepper has never been averse to big bets. Many of them paid off and helped make him one of the richest people in the world. Tepper’s net worth of $20.6 billion put him at 94th Forbes‘ranking of the world’s billionaires.
The Appaloosa hedge fund manager isn’t one to rest on his laurels either. Tepper just made a one-stock bet that probably only happens once in a generation.
A bull in the China shop
You could say Tepper is a bull in the China shop these days. In the first quarter of 2024, he increased Appaloosa’s stake in the Chinese online retailer PDD companies, which operates Pinduoduo and Temu, with almost 171%. The billionaire investor increased his hedge fund’s rankings in the Chinese search engine Baidu by 188%. He also started a new position at a Chinese e-commerce company JD.com.
However, Tepper invested most heavily in another Chinese technology company, Alibaba Group Holding (NYSE: BABA). He bought an additional 6.9 million shares of Alibaba in the first quarter. This increased Appaloosa’s stake by nearly 159% to more than $814 million. Alibaba is now the largest holding in the hedge fund’s investment portfolio.
Tepper first bought Alibaba shares in 2014, but quickly exited the position. He invested in the shares in the third quarter of 2015, but sold all his shares again shortly afterwards. The billionaire investor repeated this pattern of buying Alibaba, but didn’t hold it for long in 2017 and 2019.
However, Appaloosa’s current position in Alibaba will last longer. The hedge fund took a new position in the stock in the second quarter of 2022. Tepper has since bought and sold shares of the Chinese technology company several times. But his recent purchase reflects the largest amount he has ever invested in Alibaba in a single quarter.
Why Tepper probably likes Alibaba
We can only speculate as to why Tepper likes Alibaba so much. However, I think there are three reasons that particularly stand out.
The first is appreciation. Alibaba’s stock price is down about 75% below its late 2020 peak. The stock now trades at an earnings multiple of less than 9.5. That’s almost unheard of for tech stocks.
Second, Tepper seems to expect the Chinese economy to hold up relatively well. If he didn’t, I seriously doubt he would be putting so much of Appaloosa’s money into Chinese stocks.
Third, I suspect Tepper is happy with Alibaba’s growth prospects in the coming years as the company moves into artificial intelligence (AI). Alibaba Chairman Joe Tsai and CEO Eddie Wu wrote to shareholders last month that AI is “the most powerful element that will transform and accelerate the growth of our businesses.” Tsai also updated the audience JPMorgan Chase‘s annual Global China Summit in May: “We are the only company [in China] both of which run a leading cloud business and are competitive in AI.”
Is it time to buy Alibaba stock?
With billionaire Tepper investing so heavily in Alibaba, is it time for other investors to buy the stock? Maybe, but not for everyone.
Risk-averse investors should probably avoid Alibaba for now. China’s economic problems could be worse than they seem. Economist and Nobel Prize winner Paul Krugman believes that the country’s economic model is not sustainable. Both President Joe Biden and the Republican Party’s presumptive presidential nominee, Donald Trump, favor higher tariffs on China, which could further complicate matters.
However, aggressive long-term investors willing to accept potentially high volatility may find Alibaba attractive. The company could have great growth prospects, especially from hosting AI applications on its cloud platform. Tepper’s one-time bet could be one that other investors would also want to get in on.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Keith Speights has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Baidu, JD.com, and JPMorgan Chase. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.
Billionaire David Tepper just placed a one-time bet on this stock. Time to buy? was originally published by The Motley Fool
