In Q1, billionaire David Tepper of Appaloosa Management sold nearly 56 percent of his remaining shares in chipmaking giant NVIDIA (NASDAQ:NVDA).
Tepper has been drawing down his position in NVIDIA over the last year and a half, with the largest sales having occurred in 2024.
Why is David Tepper selling NVIDIA at a time when the stock is soaring, and is there a play following the Appaloosa chief’s investment decisions in the AI arena?
Tepper’s Shift in His AI Portfolio
The decision to sell NVIDIA wasn’t the only change David Tepper has made to the AI portion of his portfolio. The billionaire has also been selling AMD (NASDAQ:AMD) and, most notably, buying 130,000 shares of Broadcom (NASDAQ:AVGO).
Broadcom is a stock that many investors have moved toward recently, as it is an appealing maker of application-specific integrated circuits. ASIC chips offer improved performance and greater efficiency compared to the GPUs that NVIDIA manufactures, creating a large market opportunity for Braodcom as AI models become more and more computationally demanding.
Why Did David Tepper Sell NVIDIA Stock?
Tepper’s decision to sell NVIDIA largely stems from its exorbitantly high valuation. Today, NVDA is still priced at 50.0x earnings, 25.8 times sales and 53.2 times operating cash flow despite being one of the largest businesses in the world with a market cap approaching $4 trillion.
With Tepper already sitting on massive gains from buying NVIDIA throughout 2023 when share prices were much lower, valuation alone is likely a trigger to take profits from NVDA and invest them elsewhere.
The theory however may be somewhat contradicted by the fact that Broadcom is also trading at a massive value premium. Indeed, at the time of this writing, AVGO shares traded at 101.2 times earnings, a significantly higher earnings premium than NVDA shares.
Broadcom’s market cap is less than one-third that of NVIDIA, potentially leaving it more room to grow as demand for application-specific AI chips heats up.
Tepper may also have determined that NVIDIA’s incredible run of growth will finally be challenged by increasing competition.
With more large tech firms designing their own chips in order to reduce their dependence on NVIDIA and other vendors gradually catching up to the chip behemoth, NVIDIA is apt to face much stiffer competition going forward than it has so far. NVIDIA still holds a dominant position in the AI chip market, but Tepper may have decided that the business’ moat isn’t quite as strong as it once was.
A final explanation for Tepper’s decision to sell NVIDIA could be that he is beginning to see the AI market as a whole as being on shaky ground. While Tepper owns shares in many large tech firms like Amazon, Microsoft and Meta that are investing heavily in AI, he seems to have drawn down his holdings in pure-play AI stocks. Even Broadcom, which he bought as he was selling off shares in other AI businesses, accounts for just over 0.5% of the Appaloosa portfolio.
This last possibility may carry even more weight when one looks at Tepper’s Q1 activity as a whole. Tepper actively increased his positions in Meta and Alphabet, indicating that he might be favoring tech businesses with AI exposure but that aren’t staking everything on the technology. Another significant increase was made to Appaloosa’s Uber position, which was increased by more than 110 percent and now makes up about 5 percent of the portfolio.
Tepper doesn’t seem to be shying away from high-growth tech stocks, but those that are focused exclusively or primarily on AI do seem to have lost favor in his portfolio for the time being.
Why Tepper Sold NVIDIA
NVIDIA has been drawn down to such a small holding within the Appaloosa portfolio, it seems likely that a combination of profit-taking and general concern about the valuations of pure-play AI stocks provide the best explanation.
The shares Appaloosa sold in Q1 were sold at an average price of over $127, nearly 4x the $32.10 Tepper paid on average for his NVIDIA stake. Given that Tepper’s current stake in NVIDIA has all been built since 2023, it’s far from difficult to imagine him deciding to lock in his already outsized gains.
A contributing factor is also that AI businesses, like NVIDIA, also face several challenges right now that most likely have driven Tepper to see them as overvalued.
First and foremost, one of the remarkably few constants between the Trump and Biden administrations has been an effort to restrict the sale of advanced AI chips to China. This, alongside other trade uncertainties, has at least the potential to slow NVIDIA’s growth in the years to come. With the market perhaps not fully pricing these risks in, NVIDIA could be somewhat overvalued despite its incredible performance.
In the end, Tepper may have been following some of the longest-standing investment wisdom in the world when he decided to sell NVIDIA. Benjamin Graham, the famous father of value investing who mentored Warren Buffett, was a proponent of buying stocks that appeared undervalued and selling if and when they became overvalued.
Though Tepper may not have Buffett’s value investing credentials, many of his positions over the years have been informed by this basic philosophy. Given this, it seems Tepper likely decided to sell NVIDIA when its valuation may have looked a bit too high in order to put the money into other opportunities he believed could generate larger forward returns.
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.