David Tepper Sells AI Stocks

David Tepper of Appaloosa Management, a billionaire fund manager, oversaw close to $8.4 billion in assets as of the end of March. According to Form 13F filings with the Securities and Exchange Commission, Tepper was net-selling artificial intelligence (AI) stocks during the first quarter.

Appaloosa opened a new position with 130,000 shares in Broadcom, an AI-networking specialist. It also added 60,000 shares of Meta Platforms and 20,000 shares of Taiwan Semiconductor Manufacturing to existing positions during the first quarter.

AI Stock Sales

Based on Appaloosa's 13F, Tepper sold shares of five AI stocks in the quarter that ended in March.

This selling activity could represent profit-taking. Shares of Nvidia, Microsoft, AMD, and Lam Research have increased as the AI revolution has taken shape. Appaloosa averages a holding period of around 29 months.

There may be more than profit-taking behind Tepper’s net selling of AI stocks.

AI Market Dynamics

Demand for AI-graphics processing units (GPUs) and AI solutions has been strong. Nvidia's Hopper and Blackwell GPUs have a significant market share lead in AI-accelerated data centers, and AMD is increasing production of its Instinct AI-accelerating chips. Intel's central processing units (CPUs) also play a role in expanding AI-data center infrastructure.

AI-GPU scarcity has been important to Nvidia's sales and profit growth, allowing the company to put a premium on Hopper and Blackwell GPUs. However, AMD and other competitors are ramping up production, and many of Nvidia's largest customers are developing AI chips internally. AI-GPU scarcity could decrease in the coming quarters.

This is expected to affect the pricing power of Nvidia, AMD, and possibly Intel. It could also affect the pricing power of semiconductor equipment companies like Lam Research.

AI Bubble?

Every next-big-thing trend has gone through a bubble-bursting event early in its expansion phase. Investors overestimate how quickly a new technology will gain widespread adoption.

Most businesses deploying AI solutions have not yet optimized those solutions or generated a profit on their AI investments. If the AI bubble were to burst, weakness could occur among the five AI stocks Tepper exited or reduced in the March-ended quarter. Nvidia, which generated over 90% of its net sales from its data center segment in its fiscal fourth quarter, would likely be affected the most.

Microsoft would also be impacted. Growth for its Azure cloud infrastructure service platform, which incorporates generative AI solutions, would likely slow during an AI bubble-bursting event.

David Tepper may be allowing these odds to guide his investment strategy.