Billionaire David Tepper, Who Bet on Failing Banks in the '08 Crisis to Profit By $7 Billion, Massively Diversifies Tech Stake in Q1

Billionaire investor David Tepper is known for his high-risk, aggressive trading style. As the founder of the Appaloosa Management hedge fund, Tepper has made a fortune with his contrarian calls and bets on the debts of distressed assets.

During the '08 financial crash that drove down the value of banks to record lows, Tepper was heavily investing in these assets in distress. As an opportunistic fund manager, he bought almost $2 billion worth of commercial mortgage-backed securities at face value from AIG. Soon after, he profited by $7 billion on the trade after the US government stepped in to save the banks.

He founded Appaloosa in 1993 with $57 million in capital. The portfolio returned 57% in the first six months and continued to succeed by investing in the debt of troubled firms like Worldcom and Enron. Today, his tech-heavy equity portfolio is worth $6.7 billion.

Tepper, who has a wealth of $20.6 billion, is the 94th wealthiest person in the World, as per Forbes.

As a staunch believer in AI and that cryptocurrency is a "store of value" like gold, Tepper's trades in Q1 2024 signal he has attempted to diversify offshore. He slashed his holdings in "magnificent seven" stocks and upped his stake in popular and cheap Chinese tech stocks amid a record valuation gap with the US market.

On average, the Magnificent Seven stocks returned 111% last year compared to the S&P 500's 24% jump. The seven stocks have climbed by 22%, on average, year-to-date, compared to 11% from the S&P 500. However, looming risks of a price correction in the tech sector focused on AI are likely driving investors, including Tepper, to look for better stock deals elsewhere.

As per a regulatory filing released last week, Tepper slashed his stake in Nvidia by 44%, followed by a 39% decline in Meta Platforms' holdings. He also offloaded shares of Microsoft and Alphabet by 18% and 10%, respectively. Nvidia and Meta stocks gained massively by 546% and 293%, respectively, since early 2023 on the back of the AI revolution, but speculations that the rally will cool down continue to rise.

Meanwhile, China's CSI 300 index tanked to a five-year low in early 2024 as the mainland's rebound struggled to take off due to a prolonged economic slump, a steep drop in manufacturing, and the battered real estate sector. In turn, the valuation of China's top stocks fell to multi-year lows, offering a lucrative opportunity for investors. Stocks like Alibaba, Baidu, and JD.com recorded growth in Q1 but are still trading at cheaper valuations vs the price-to-earnings (P/E) ratio for the S&P 500.

Tepper increased his stake in Alibaba Group Holdings by 158%, making it his top buy in Q1. The e-commerce provider now makes up 12% of his portfolio with 11.25 million shares worth over $800 million. The firm's heavy investment in AI research and integration to offer products through Alibaba Cloud, one of the top four global cloud solutions providers, has significantly contributed to its cloud business growth.

He also increased his stake in PDD Holdings (Pinduoduo) by 171% in the last quarter to own 2.1 million shares worth $244 million. The online retailer is now the largest e-commerce firm in China and is expanding rapidly worldwide with its trending platform, Temu. The stock now makes up 4% of Tepper's portfolio.

Another significant change in his portfolio was increasing his stake by 188% in China's dominant internet search engine, Baidu, which prioritises AI development. He now owns 1.8 million shares worth $190 million, making up 3% of Tepper's portfolio.

The recent improvements in China's economic prospects could drive investors' confidence in the nation. The mainland's GDP grew 5.3% last quarter. However, government crackdowns on the tech and banking sectors, volatile markets cushioned by frequent relief measures across industries, and unstable US-China relations don't make the investing landscape ideal.

While Tepper's trades last quarter could mean he sees more upside in China stocks, remember that over 30% of his portfolio comprises the "Magnificent Seven" shares.

Disclaimer: Our digital media content is for informational purposes only and not investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks and past performance doesn't indicate future returns.