Billionaire David Tepper of Appaloosa Holdings made what many investors would consider a surprising move in Q1 by selling off part of his stake in Amazon (NASDAQ:AMZN).
Tepper liquidated about 90,000 shares of the eCommerce behemoth, amounting to 3.5 percent of his total AMZN holdings. Why did David Tepper sell Amazon stock, and should his decision to sell worry other investors who are holding Amazon?
When Did Tepper Start Selling Amazon?
While Tepper sold a decent chunk of Amazon in Q1, it wasn’t the first time he has reduced his holdings in the eCommerce giant. Appaloosa has actually been selling Amazon shares in every quarter since Q1 of 2024. The selling streak reached its highest point in Q4 of last year, when Tepper decided to unload about 600,000 shares, accounting for almost 19 percent of his total AMZN holdings.
Has David Tepper Lost Confidence in Amazon?
Despite consistent selling over the last year and a half, there doesn’t seem to be much evidence that Tepper has fundamentally soured on AMZN stock. Amazon still makes up over 9 percent of the Appaloosa portfolio, making it the fund’s second-largest holding behind only Alibaba. If the billionaire no longer believed Amazon to be a good investment, it seems highly unlikely that he wouldn’t have drawn down his Amazon position much more or exited it altogether.
What Tepper may have calculated, though, is that Amazon is no longer undervalued enough to keep buying. In Q1 of last year, Tepper realized an average of about $167 on the shares he sold. Since then, his average selling prices have drifted steadily upward, rising to about $217 in Q1 of this year. This, combined with the gradual selling Tepper has done, may indicate that he is simply taking some profit on shares that are already well above his average cost basis of just $105.
Amazon’s current valuation may confirm this, as it appears to be in a range where a bit of profit-taking could be justified. AMZN currently trades at 36.4 times earnings and about 115 times operating cash flow. Though the sheer quality of Amazon’s business could justify this premium pricing, there doesn’t seem to be much of a chance that Amazon is still significantly undervalued. Barring unexpectedly high levels of growth, AMZN’s returns may level off a bit, though it still seems likely that the stock will keep rising steadily for the foreseeable future.
Tepper’s ongoing confidence in Amazon seems to be further confirmed by the fact that he hasn’t been reluctant to jettison other leading stocks in his portfolio recently. Appoloosa has sold off its entire stake in AMD and the vast majority of its NVIDIA holdings, showing that Tepper may not share the market’s extremely bullish view on AI chipmakers. The reduction in Amazon shares has been far less drastic, likely indicating a different view of Amazon’s future prospects than those of the large chip manufacturers.
Taking profit from Amazon also likely gives Tepper a chance to rebalance his portfolio. By freeing up cash from an investment that is already disproportionately up, Tepper gets the chance to reinvest some of his gains elsewhere. With Amazon likely approaching a fair valuation, Appaloosa may see opportunities to realize higher gains in other stocks that are still actively undervalued.
So, Why Did David Tepper Sell Amazon?
There appear to be two good explanations for Tepper selling Amazon, and it’s likely that there’s a bit of truth in both of them. The first is that Tepper is taking profit as Amazon rises further and further, giving him a chance to both lock in gains and rebalance his portfolio. Given what a large stake Tepper still has in Amazon, this explanation seems to fit his selling activities fairly well.
Another possible piece of the puzzle may be found in some of the stocks Tepper has been loading up on recently. Specifically, Appaloosa bought Alphabet and Meta in Q1, both of which are also leading AI stocks. Another stock that Tepper has been purchasing is NRG Energy, a hydroelectric power generation company that stands to benefit significantly from the rising power demands of data centers.
Cumulatively, this approach gives Appaloosa exposure to both the large tech businesses that are most likely to benefit from investing in AI development and the power companies that could see electrical demand surge as data centers are built up. While chip majors like NVIDIA and AMD seem to have reached a valuation that Tepper may no longer be comfortable with, the Appaloosa portfolio at the moment seems to be taking an end-to-end approach to capitalizing on AI.
Altogether, it seems that Tepper’s decision to sell Amazon has little to do with waning confidence in the eCommerce giant. Instead, he seems to be using the gains he has made in Amazon, as well as other companies, to continue pursuing a broader investment strategy meant to take full advantage of the AI boom. This seems to fit, as Tepper has historically used a combination of traditional value investing and a deep understanding of macro trends to deliver his fund’s market-beating returns.
What Does This Mean for AMZN Shareholders?
Tepper’s ongoing comfort with a high level of exposure to Amazon may also be good news for those who own AMZN stock. Although shares of the online retailer may be approaching their fair value, there doesn’t seem to be a huge risk of the stock retreating at the moment. Analysts even see Amazon gaining around 8.5 percent over the next 12 months, a respectable rate of return that may make the stock worth holding for many investors.
So, while Tepper may see other ways to invest money made from the sale of Amazon shares, it doesn’t appear that those who continue to hold Amazon have a great deal to worry about at the moment. Indeed, Amazon’s earnings per share are projected to keep growing at a rate of about 18 percent through the next 3-5 years. Even with AMZN’s premium pricing, this rate of growth could allow shareholders to see steady returns as the business keeps expanding in the years to come.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.