David Tepper is a billionaire known for owning the NFL’s Carolina Panthers team and co-founding the hedge fund Appaloosa Management.
Each quarter, institutional investors managing over $100 million are required to file a form 13F. These filings reveal the buying and selling activity of “smart money” portfolio managers during the quarter.
According to Appaloosa’s latest 13F, the firm divested 84% of its stake in semiconductor stock Nvidia (NASDAQ: NVDA) in the second quarter. Tepper, during an interview, candidly revealed the rationale behind the sale of Nvidia stock.
A wise man knows he knows nothing
In the interview, Tepper discussed Nvidia’s near-term growth prospects, especially with the upcoming Blackwell GPU launch. However, he expressed uncertainty regarding Nvidia’s outlook beyond 2025.
Tepper emphasized the uncertainty surrounding Nvidia’s growth and questioned whether the company possesses the power and next-generation models necessary for sustained growth.
What specific challenges does Nvidia face?
Nvidia’s growth is heavily reliant on its compute and networking business, with its GPUs being industry-leading in AI applications. Despite having major customers like Microsoft, Tesla, Amazon, Meta Platforms, and Alphabet, competition is increasing as these companies develop their own chips.
With more competition arising, Nvidia’s pricing power might diminish, impacting various facets of its operation including sales, profit margins, and cash flow.
Image source: Getty Images.
Should you dump your shares of Nvidia stock, too?
Rising competition poses a threat to Nvidia’s growth, but the extent of this impact on revenue and earnings remains uncertain. This ambiguity surrounding Nvidia’s financial outlook likely influenced Tepper’s decision to sell his stake.
Considering the increasing competition and unsure financial forecast, it might be challenging for Nvidia to justify trading at a premium over its peers in the long term.
While Nvidia will likely continue to drive the AI sector, it’s plausible that the stock’s peak performance has passed. It’s advisable not to rush in selling Nvidia shares but consider adjusting exposure based on growth prospects, akin to Tepper’s strategy.
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*Stock Advisor returns as of October 7, 2024