David Tepper seems to be firmly on the artificial intelligence (AI) bandwagon. All of his top 10 positions have close AI connections.
However, the billionaire investor doesn’t seem to be as bullish on some of those AI stocks as he once was. In the first quarter, Tepper sold shares of AmazonGoogle parent Alphabet, MicrosoftFacebook parent MetaplatformsAnd Nvidia. However, he bought these three AI stocks by hand.
1. Alibaba Group holding company
Alibaba Group Holding (NYSE: BABA) is now the largest holding in Tepper’s Appaloosa Management portfolio. The Chinese tech company jumped past Amazon, Microsoft, Meta and Nvidia to take the top spot after Tepper increased its stake by almost 159% in the first quarter.
Tepper’s move has already paid off. Alibaba shares fell almost 7% in the first quarter of 2024. However, they are now up almost 11% this year, after rising 17% in April and May.
Why did the billionaire investor decide to significantly increase Appaloosa’s position in Alibaba? Appreciation was almost certainly a key factor. Alibaba’s shares trade at less than 10.5 times forward earnings. The stock’s price-to-earnings-growth ratio (PEG) is a low 0.82.
Tepper is also likely happy with Alibaba’s strategy to return to growth. The company’s first-quarter results show that this strategy is paying off. Sales increased by 7% year-on-year in the first quarter. Alibaba has also recently shaken up China’s AI services market by cutting prices for its AI offerings.
2. Oracle
Appaloosa Management has increased its position in Oracle (NYSE: ORCL) by almost 74% in the first quarter. This major purchase moved Oracle to eighth place in the hedge fund’s portfolio.
Oracle enjoyed solid momentum through most of the first quarter. The stock is up almost 20% so far this year, having rebounded from a pullback in April. But even with these nice gains, Oracle’s profit margin is under 20 — less expensive than most mega-cap AI stocks.
I suspect that Tepper finds Oracle’s cloud activities particularly attractive. The company’s cloud revenue rose 25% year-over-year to $5.1 billion in the latest quarter, representing 38% of total revenue.
AI remains a key growth driver for Oracle’s cloud division. CEO Safra Catz said in the fiscal third-quarter earnings press release that demand for the company’s Gen2 AI infrastructure “substantially exceeds supply – even as we open new and expanding cloud solutions.” [data-centers] very, very quickly.”
3. PDD companies
PDD companies (NASDAQ:PDD) ranks ninth after Oracle in Appaloosa Management’s portfolio. Tepper bought more than 1.3 million shares of the Chinese tech stock in the first quarter, increasing his hedge fund’s holdings by about 171%.
Many US investors may not be familiar with PDD. The company operates Pinduoduo, a popular e-commerce platform in China. It also operates Temu, a relatively new online marketplace that focuses on global markets, including the US. Like its American counterpart Amazon, PDD is investing heavily in AI technology.
PDD had a rough first quarter, with shares falling nearly 25% at one point. However, the stock has seen a strong recovery in recent weeks. This recovery was partly fueled by PDD’s positive first quarter results. Revenue increased 131% year-over-year, while adjusted profit more than tripled year-over-year.
Tepper is undoubtedly happy with PDD’s appreciation. The stock trades at 16.4 times forward earnings with a PEG ratio of 0.71. The billionaire could also see PDD’s Temu strategy as a great long-term growth driver.
Better than Amazon, Alphabet, Microsoft, Meta and Nvidia?
Are Alibaba, Oracle and PDD better choices than Amazon, Alphabet, Microsoft, Meta and Nvidia? Tepper seems to think so – or at least did in the first quarter. One thing is certain: these three stocks are cheaper than the five Magnificent Seven stocks. That could appeal to other investors, as the overall stock market is priced at a premium.
I am somewhat hesitant about investing in Alibaba and PDD due to the uncertainty surrounding the possible actions of the Chinese government. However, I think all eight stocks should be big winners in the long term.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Keith Speights holds positions at Alphabet, Amazon, Meta Platforms and Microsoft. The Motley Fool holds positions in and recommends Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends Alibaba Group and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Billionaire David Tepper sold Amazon, Alphabet, Microsoft, Meta and Nvidia in the first quarter. But Here Are 3 AI Stocks He Bought Hand Over Fist was originally published by The Motley Fool
