David Tepper is one of the most successful and richest hedge fund managers, having mastered the art of skillfully navigating market crises. The Carnegie Mellon graduate founded Appaloosa Management in 1993 with just $57 million after a stint at Goldman Sachs as a credit analyst. While the hedge fund first focused on distressed debt, it has grown in strength with solid bets in public equity and fixed income.
Tepper's fund is one of the most followed on Wall Street owing to its impressive track record. It has posted a portfolio gain of 201.56% since 2013 and generated average returns of 19.63% over the past three years. As the global economy was bouncing from the financial crisis in 2009, the hedge fund generated a 30% return in 2010.
Tepper has been one of the most vocal investors about the high-interest rate environment triggered by the need to lower inflationary pressures. Late last year, he echoed his concern that central banks were unlikely to lower interest rates, something that could pose significant challenges to the equity markets.
Given that the Fed has hiked interest rates from nearly zero to north of 5%, there are growing concerns about the potential impact of the high interest rate environment. While such hikes are often expected to curb inflation, they tend to drag down house prices, triggering higher mortgage rates. They also heap pressure on debt-reliant industries like commercial real estate.
Even though Tepper has called out the high-interest rate environment, he maintains investors should expect stocks to command lower valuations than in the past years as financial conditions tighten. With the lower valuations, the hedge fund manager has been building stock positions he believes offer a solid long-term return.
Our Methodology
We scanned Appaloosa Management's second quarter portfolio and picked some of its top holdings.
Billionaire David Tepper Doesn't Like Most Stocks But He Likes These
12. Baidu, Inc. (NASDAQ:BIDU)
Appaloosa Management's Q2 2023 Investment: $174.6 million
Number of Hedge Fund Shareholders: 36
Baidu, Inc. (NASDAQ:BIDU) is a Chinese internet giant that provides an array of services, including search, online marketing services, and online entertainment services. The company makes money by selling display ads promoting search results and managed pages.
By the end of the current year's second quarter, 36 of the 910 hedge funds part of Insider Monkey’s database had bought a stake in Baidu, Inc. (NASDAQ:BIDU).
Here is what Ariel Global Fund said about Baidu, Inc. (NASDAQ:BIDU) in its Q2 2023 investor letter:
“By comparison, after a strong run last quarter, China’s internet search and online community leader, Baidu, Inc. (NASDAQ:BIDU) declined alongside a correction in Chinese stocks attributed to weak gross domestic product. We believe this price action runs counter to the company’s solid business fundamentals. Baidu delivered a top- and bottom-line earnings beat in the period, driven by a recovery in ad and cloud revenues. The company continues to invest heavily in Artificial Intelligence (AI) and is launching a generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
11. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Value of Appaloosa Management LP’s 13F Position: $179.13 million
Number of Hedge Fund Shareholders: 121
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) is one of the biggest semiconductor companies in the world, renowned for manufacturing, packing, and selling integrated circuits and other semiconductor devices.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) attracted more hedge fund interest in the second quarter of 2023, as per Insider Monkey's survey of 910 hedge funds. The survey revealed that the number of hedge funds that owned the firm's shares rose from 102 to 121 in that period. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s largest hedge fund investor is Jean-Marie Eveillard’s First Eagle Investment Management since it owns 9.06 million shares that are worth $914.18 million.
Baron Funds made the following comment about about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its first quarter 2023 investor letter:
“Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) contributed in the first quarter due to easing geopolitical concerns and expectations for end-demand recovery later in 2023. We retain conviction that Taiwan Semi’s technological leadership; pricing power; and exposure to secular growth markets, including high-performance computing, automotive, 5G, and IoT; will allow the company to sustain strong earnings growth over the next several years.”
10. QUALCOMM Incorporated (NASDAQ:QCOM)
Value of Appaloosa Management LP’s 13F Position: $220.22 million
Number of Hedge Fund Shareholders: 73
Appaloosa Management owns a $220.2 million stake in QUALCOMM Incorporated (NASDAQ:QCOM).
The firm's shares were held by 73 hedge funds in the second quarter of 2023, according to Insider Monkey's study of 910 hedge funds. This was an increase from 69 hedge funds that owned the firm's shares in the previous quarter.
In its Q2 2023 letter to investors, ClearBridge Investments said this about QUALCOMM Incorporated (NASDAQ:QCOM):
"In the technology sector, in addition to exiting Cisco Systems, we also sold out of our marginal position in QUALCOMM Incorporated (NASDAQ:QCOM), whose business is tied to wireless handsets. With the 5G cycle largely played out and competitive risks in the wireless component space rising, we see less upside for Qualcomm relative to earlier in the cycle."
9. Intel Corporation (NASDAQ:INTC)
Value of Appaloosa Management LP’s 13F Position: $226.56 million
Number of Hedge Fund Shareholders: 71
Intel Corporation (NASDAQ:INTC) has carved a niche in designing, developing, and selling computing and related products. Its product line includes central processing units and chipsets, system-on-chip, and multichip packages. It also makes connectivity products, memory, and storage products.
Appaloosa Management held stakes worth $226 million in Intel as of the end of the second quarter.
This is what ClearBridge Investments wrote about Intel Corporation (NASDAQ:INTC) in its Q4 2022 investor letter:
“A third approach to return generation is purchasing idiosyncratic businesses that largely control their own destiny. Intel Corporation (NASDAQ:INTC), which we purchased in the first quarter on the premise that it would develop a leading domestic foundry business, has struggled with execution missteps and product delays. We are maintaining the position to provide ongoing exposure to semiconductors.”
8. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Value of Appaloosa Management LP’s 13F Position: $263.13 million
Number of Hedge Fund Shareholders: 112
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a chip giant operating in four segments: Data Centre, Client Gaming, and Embedded. The company offers x86 microprocessors and graphics processing units (GPUs) as an accelerated processing units, chipsets, data center, and professional GPUs, and embedded processors.
Appaloosa Management turned to Advanced Micro Devices, Inc. (NASDAQ:AMD) to gain exposure to the AI frenzy with a $263 million stake.
Artisan Partners shared its thoughts on Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2023 investor letter:
“Among our top contributors were Advanced Micro Devices, Inc. (NASDAQ:AMD), NU Holdings and Netflix. AMD’s data center CPUs are used in the cloud service provider (CSP) servers. In addition to the broader secular tailwind from cloud adoption, the company has a performance and pricing advantage over Intel, which we believe will enable it to continue capturing market share. However, the recent stock price rally was due to growing excitement around the company’s AI exposure. It will launch its new MI300 graphics processing unit (GPU) chip later this year to compete against the dominant market leader NVIDIA. Similar to its approach that won market share from Intel within the CPU market, AMD’s product will aim to provide similar performance at a more attractive price. AMD is already working with Microsoft and Meta, while Amazon publicly stated that it is evaluating AMD’s inferencing chips. Using assumptions around the total GPU market size, potential market share gains and price points, our research indicates this could be a $20 billion opportunity for AMD. That would nearly double its revenue. While the company has not historically missed many deadlines, there is execution risk as it works to manufacture and distribute these complex chips at scale, which, combined with an elevated valuation after the stock’s strong performance run, led us to trim the position.”
7. Alphabet Inc. (NASDAQ:GOOG)
Value of Appaloosa Management LP’s 13F Position: $279.44 million
Number of Hedge Fund Shareholders: 152
Headquartered in Mountain View, California, Alphabet Inc. (NASDAQ:GOOG) is an internet behemoth that offers various services under the Google Services, Google Cloud, and other Bets segments. Appaloosa Management has always held stakes in Alphabet Inc. (NASDAQ:GOOG) since 2015. The fund's stake stood at $279.44 million as of the second quarter, accounting for 5.18% of the portfolio.
Here is what Artisan Partners said about Alphabet Inc. (NASDAQ:GOOG) in its Q2 2023 investor letter:
“Our best performing stocks this quarter were Meta, Alphabet Inc. (NASDAQ:GOOG) and Heidelberg Materials. The rise in Alphabet’s share performance was primarily driven by the AI frenzy. Earlier this year, there were some doubts about Alphabet’s ability to compete with OpenAI’s ChatGPT product. This was a bit ironic since Alphabet has been using AI technology to improve its Google search results and advertising business for years. Indeed, the technology that underpins OpenAI’s ChatGPT actually came from Alphabet more than five years ago. But sometimes the market needs a reminder, and Alphabet provided tangible evidence of its capabilities. At a recent developer conference, it launched Bard, a consumer-oriented generative AI version of its search engine, as well as several other concrete examples of how AI could improve its current business. As with Meta, the long-term implications of AI on Alphabet’s business model are still far from certain. But we do believe that it is a technology leader in this field and will participate in whatever direction the technology develops.”
6. Uber Technologies, Inc. (NYSE:UBER)
Value of Appaloosa Management LP’s 13F Position: $308.67 million
Number of Hedge Fund Shareholders: 144
Uber Technologies, Inc. (NYSE:UBER) has found its footing after coming under immense pressure in 2022. The stock is already up by more than 60% year to date. The rally comes on the expectation that the company is moving closer to its target of breakeven after years of losses. Expectations are high that the company will post a full-year profit in 2023 and grow 50% on average after that.
Uber Technologies, Inc. (NYSE:UBER)’s strong growth prospects explain why Appaloosa Management holds a stake worth $308.67 million, accounting for 5.72% of its portfolio.
Insider Monkey scouted 910 hedge fund portfolios for 2023’s second quarter to discover that 144 had invested in Uber Technologies, Inc. (NYSE:UBER). The firm’s largest hedge fund shareholder is Brad Gerstner’s Altimeter Capital Management with a $575.74 million stake.
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