Tepper favors companies that can significantly benefit and contribute to the new AI revolution.
David Tepper made his name and money through Appaloosa Management, the global hedge fund he founded, before becoming the owner of the NFL's Carolina Panthers and MLS' Charlotte FC. Mr. Tepper's net worth is approximately $20 billion, making him one of the top 100 richest people in the world. Needless to say, he has found success in the investment world.
Given Tepper's success, it's no surprise that investors are looking to him and hedge funds for tips. Average investors and billionaire hedge fund managers don't have the same risk tolerance or investment goals, but there's nothing wrong with looking to them for inspiration.
Tepper's portfolio is fairly concentrated, with nearly a third held in three “Magnificent Seven” stocks. If investors want a solid business with long-term sustainability, look no further.
1. Amazon
Amazon (AMZN 3.43%) became famous for its e-commerce business, but has since expanded to become a major player in several industries.
For a while, Amazon's e-commerce business was unprofitable and was used primarily as a source of revenue. It's still Amazon's biggest source of revenue, but it's only recently turned profitable. In the fourth quarter, Amazon's North American division posted an operating profit of about $6.5 billion, a nice turnaround from a $240 million loss in the fourth quarter of 2022. The international division lost $419 million, which is not ideal, but Amazon is still profitable. Businesses other than Amazon Web Services (AWS).
AMZN Operating Income (Quarterly) Data by YCharts
There is still room for growth in e-commerce, but much of Amazon's growth will depend on its cloud service AWS. Although AWS growth has slowed recently, Amazon's 13% year-over-year (YOY) growth rate for Amazon's biggest revenue generator isn't terrible. AWS has a dominant market share in cloud services worldwide, but it has lost some ground over the past year. Still, it holds the top spot with a market share of 31%. microsoft's (MSFT 1.82%) Azure (24% share) and Alphabet's Google Cloud (11%).
In the long term, Amazon will benefit from organic growth in cloud services and e-commerce. However, the company is also keen to invest in new industries. Take, for example, its $13.7 billion acquisition of Whole Foods and its health care ambitions. Investors can hope that the company is not complacent.
2.Microsoft
There are many different technology businesses, and Microsoft is the poster child for an even wider network of businesses.
It's no coincidence that Microsoft has become the world's most valuable publicly traded company. It took years of impressive business growth and the support of AI enthusiasts. The latter could also lead the company to the next stage of growth.
Microsoft's strategic partnership with OpenAI, which gives the company an exclusive license to OpenAI's Large-Scale Language Models (LLM), could be just what the company needs to further strengthen its grip on office software. unknown. From Office (Excel, Word, PowerPoint, etc.) to Azure to Teams, Microsoft is almost inevitable in the corporate world.
Microsoft's large number of corporate customers can ensure the survival of the company and protect it from economic and market downturns. When times get tough, consumers can easily forego the latest smartphones and online shopping, and businesses may cut back on advertising. It's much more difficult for businesses to stop using Office software, move data out of the cloud, or move away from established communication platforms like Teams.
3. Metaplatform
Facebook creator meta platform (meta 0.43%) continues to be one of the major cash cow businesses, with revenue of approximately $36.5 billion in the first quarter, up 27% year over year.
Average daily active population of 3.24 billion families in March 2024 (up 7% year over year), showing why Facebook remains the go-to for many of the world's top advertisers . Meta leveraged this to increase the average revenue per person in a family from $9.47 in Q1 2023 to $11.20 in Q1 2024.
Despite the growth in key metrics, Meta's stock price fell sharply after the latest earnings release, dropping as much as 15% on the same day. Much of that is due to the company's upcoming spending plans, with a large portion of that spending tied to the company's AI infrastructure. Meta said it plans to spend between $35 billion and $40 billion this year, up from its previous estimate of $30 billion to $37 billion.
META Capital Expenditure (Annual) Data by YCharts
Investors may not agree with the spending plan, but that reaction appears to be an overreaction. However, the good news is that the lower valuation makes it a more attractive entry point.
Investors should also appreciate Meta's new dividend of $0.50 per share. While the dividend yield isn't enough to satisfy most income-seeking investors, it could be an incentive for investors to be patient as Meta works on its AI plans.
Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Randi Zuckerberg is a former Facebook market development director and spokesperson, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Stefon Walters has a position at his Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
