David Tepper Shifts Strategies: The Rise and Fall of Nvidia and JD.com

Investors on Wall Street are inundated with crucial data each quarter. Major companies release their earnings, and economic indicators are announced weekly. Amidst this barrage of information, vital developments can easily be overlooked.

For example, while many focused on the July inflation report in August, the August 14 deadline for institutional investors to file Form 13F with the SEC might have slipped by. This form reveals which stocks leading money managers bought or sold in the previous quarter, specifically for this report, the quarter ending June 30.

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The most closely watched asset manager is undoubtedly Warren Buffett. He has been at the helm of Berkshire Hathaway for nearly 60 years, growing the company’s Class A shares by about 5,600,000%. However, other influential managers deserve attention, including billionaire David Tepper of Appaloosa Management.

Tepper co-founded Appaloosa over 30 years ago and is known for his unique investment outlook and substantial returns. Managing a concentrated portfolio, typically consisting of around thirty stocks, he frequently adjusts his positions—either increasing or decreasing them.

Tepper Dramatically Cuts Nvidia Holdings

Artificial intelligence (AI) presents tremendous opportunities for corporate America. Analysts from PwC estimate that AI could contribute about $15.7 trillion to the global economy by 2030. Yet, David Tepper has recently chosen to sell off significant portions of his investment in Nvidia (NASDAQ: NVDA).

At the end of September 2023, Tepper’s fund held 10.25 million shares of Nvidia, adjusted for its 10-for-1 stock split occurring after trading ended on June 7, 2024. By June 30, however, Appaloosa’s stake was cut to just 690,000 shares, a staggering 93% reduction.

Nvidia has become the largest publicly traded company, adding over $3 trillion in market value since the start of 2023. Tepper’s selling could be linked to locking in profits, but deeper concerns may be behind this drastic reduction.

Historically, many groundbreaking technologies have gone through early-stage bubbles, including the internet. Investors often overestimate how quickly new tech will gain traction among consumers and businesses. It is likely that AI will experience similar growing pains, posing risks for Nvidia’s shareholders if an AI bubble were to burst.

Additionally, Nvidia faces intensifying competition. While the company holds a leading market share in AI graphics processing units (GPUs), rival companies are developing their own AI-GPUs for use in data centers, threatening to diminish Nvidia’s market presence.

Another concern lies in regulatory hurdles. In 2022 and 2023, U.S. authorities restricted shipments of advanced AI chips to China, one of Nvidia’s key markets.

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Tepper Invests in a Major Player in China’s Economy

As he downsized Nvidia, Tepper actively bought shares in a key player within China’s economy: JD.com (NASDAQ: JD).

At the start of 2024, Tepper’s fund did not own any JD shares. By mid-2024, JD emerged as Appaloosa’s 19th-largest holding, valued at $111.4 million, featuring 4,310,600 shares.

Investing in Chinese stocks carries risks, particularly due to the uncertain regulatory environment and oversight that may lead to lower earnings multiples compared to U.S. companies.

Despite this, Tepper sees potential in JD’s future. China’s growing middle class could serve as a strong driver for its e-commerce sector. While U.S. online retail sales growth has plateaued, China continues to experience steady growth.

Although online sales margins tend to be thin, JD holds several advantages. In contrast to Alibaba, which operates primarily as a third-party marketplace, JD takes control of its inventory and logistics—similar to Amazon. This allows JD to enhance its operating margins over time.

An additional factor motivating Tepper’s investment could be JD’s substantial cash reserves. As of the most recent quarter, JD reported $28.8 billion in cash and short-term investments, translating to over $20 billion in net cash, excluding debt. As Tepper acquired JD shares early in the year, half of the company’s market cap was effectively backed by cash.

With expectations for China’s strong economic growth and JD’s low valuation at roughly 10 times forward earnings, Tepper may have found a promising investment at a bargain.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Sean Williams holds positions in Amazon and JD.com. The Motley Fool has investments in and recommends Amazon, Berkshire Hathaway, and Nvidia. The Motley Fool also recommends Alibaba Group and JD.com. For details, see their disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Nasdaq, Inc.