David Tepper has built a net worth of $21.3 billion through unconventional strategies, earning him a reputation as one of the most successful hedge fund managers of his generation. His investment firm, Appaloosa Management, exhibits a clear interest in artificial intelligence (AI) stocks, although Tepper’s approach to AI investment appears to deviate from conventional methods.
Among the top holdings in Tepper’s portfolio are Amazon and Meta Platforms, both of which have been leaders in the AI sector. Amazon’s Amazon Web Services (AWS) is the leading cloud services provider, benefiting significantly from AI advancements. Similarly, Meta Platforms utilizes AI extensively across its Facebook, Instagram, Messenger, and WhatsApp applications, and its LLaMA large language model is a robust open-source AI tool.
Despite being in his top 10 holdings, Tepper reduced Appaloosa’s shares in both Amazon and Meta during the fourth quarter of 2024, with a 19% decrease in Amazon shares and a 21.6% decrease in Meta shares. This does not indicate a retreat from AI; instead, Tepper increased Appaloosa’s shares in Alibaba Group Holding by 18.4% and acquired 3.17 million additional shares of JD.com, boosting his position in JD.com by 43.4%.
Both Alibaba and JD.com, Chinese companies actively investing in AI, seem to be more appealing to Tepper than their American counterparts. However, the most intriguing part of Tepper’s strategy involves significant investments in Vistra and NRG Energy. During the same quarter, he acquired 1.43 million shares of Vistra, increasing Appaloosa’s stake by 112.5%, and enhanced the fund’s position in NRG Energy by 81.5%.
Vistra, a major integrated power provider in the U.S., operates various energy facilities, serving approximately 5 million customers across 18 states. NRG Energy ranks as one of the largest energy retailers in the U.S., supplying energy to about 8 million residential customers and having a significant presence in smart home technology. NRG operates in 25 U.S. states, the District of Columbia, and eight Canadian provinces, with its Vivint Smart Home unit extending to all 50 states.
The connection between these energy companies and AI investments lies in the growing energy demand from data centers, which are crucial for AI technological advancements. Vistra has projected that U.S. energy demand for data centers will almost quadruple by 2030. Meanwhile, NRG Energy highlighted a focus on new data center opportunities as part of its growth strategy, with Texas being the fastest-growing power market due to data center demand.
Tepper’s investment strategy suggests a belief in the potential of data center energy needs driven by AI growth. While it may be tempting to follow Tepper’s lead and invest in Vistra and NRG Energy, individuals should exercise caution and conduct thorough research. Despite recent market sell-offs making these stocks more attractively valued, with Vistra’s forward price-to-earnings ratio at 16.3 and NRG Energy’s at 12.8, it is prudent to consider their growth prospects, which appear strong due to the anticipated increase in energy demand from data centers. Although not exclusively AI stocks, they may offer indirect opportunities to benefit from the AI industry’s expansion.
