We recently published a list of Billionaire David Tepper’s Top 10 Stock Picks Heading into 2025. In this article, we are going to take a look at where Microsoft Corporation (NASDAQ:MSFT) stands against other Billionaire David Tepper’s top stock picks heading into 2025.
David Tepper is one investor who stands out in squeezing and generating optimum returns from distressed debt and undervalued equities. Born into a middle-class family, he has risen up the ranks to become one of the most successful investors on Wall Street. The billionaire investor started Appaloosa Management LP in 1993 after quitting his job at Goldman Sachs after being overlooked for promotion twice.
It is a decision the billionaire investor can never regret, as Appaloosa Management LP has grown to become one of the most followed hedge funds on Wall Street. It had one of its best performances in 2001 when it returned 61% on investing in distressed bonds after the dot com crash.
READ ALSO: Billionaire Ken Fisher’s Top 15 Stock Picks Heading into 2025 and 8 Most Undervalued Pot Stocks to Buy According to Analysts.
Additionally, Appaloosa made $7 billion at the height of the great recession in 2009, when it opportunistically bought into distressed financial stocks and bonds. The focus on distressed situations has always defined Tepper. The investment strategy has allowed Tepper to accrue significant wealth, based on his net worth of about $21 billion. His hedge fund has made billions of dollars over the years, averaging 28% returns annually.
Tepper is already sensing a window of opportunity with Chinese equities trading at highly discounted valuations in response to deteriorating economic conditions. In the aftermath of the Chinese government initiating a series of stimulus packages to try and prop up the economy, Tepper believes it is time to take a closer look at Chinese equities.
“Everything,” Tepper said when asked what Chinese stocks to buy in an interview with CNBC. “Everything… ETFs, I would do futures, everything.” The investment thesis is based on the notion that it is wrong to fight the Fed, which in this case is the Chinese government and the central bank.
Tepper’s sentiment comes on China cutting key interest rates and announcing liquidity support for the stock market. China’s central bank has lowered bank reserve requirements and encouraged companies to buy back stocks. Appaloosa Management has already responded to China’s monetary policy changes by tweaking its portfolio. The hedge fund trimmed stakes in some of the big US tech companies whose valuations have exploded over the past year amid the artificial intelligence-driven rides. In return, it has ramped up stakes in Chinese internet giants.
“I don’t love the US markets on a value standpoint, but I sure as heck won’t be short, because I’d be nervous as heck of the setup with easing money everywhere, a relatively good economy, and China just doing massive stimulus coming in, so it would make me nervous not to be somewhat long the US,” Tepper said.
Amid the sentiments, technology stocks both in the US and China account for the most significant share of billionaire David Tepper’s top 10 stock picks. Additionally, the billionaire investor is heavily invested in the services sector and basic materials as part of his diversification strategy.
Our Methodology
To compile billionaire David Tepper’s top 10 stock picks heading into 2025, we scanned Appaloosa Management LP’s Q3 ’2024 portfolio. We identified the top ten stocks from the hedge fund’s portfolio. Then, we ranked these stocks in ascending order according to the size of the hedge fund’s investments in them.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
David Tepper
Appaloosa Management LP’s Stake Value: $417.39 Million
Number of Hedge Fund Holders: 279
Microsoft Corporation (NASDAQ:MSFT) is a technology giant best known for its software offerings, including Office, Exchange, SharePoint, Microsoft Teams, and Office 365 Security and Compliance. The stock is up by about 19.60% for the year, bolstered by the company’s efforts to lead in artificial intelligence.
MSFT remains the top player in cloud computing, second to Amazon Web Services. The cloud business provides tremendous opportunities for growth as more enterprises migrate their operations to the cloud. In the third quarter, cloud revenue was up by 33% year-over-year, above the 29% growth recorded in the second quarter.
Microsoft Corporation (NASDAQ:MSFT) has demonstrated its ability to innovate and adapt in several areas outside of cloud computing. With the launch of Microsoft 365 in 2011, the company shifted its suite of productivity tools to a software-as-a-service (SaaS) model, which aided in growth. In the meantime, this presents the business with yet another significant AI opportunity.
Its investment of about $14 billion in OpenAI is helping strengthen growth prospects on the cloud. Customers have been demanding Azure’s services, which enable them to develop their own AI agents and copilots due to its pay-as-you-go consumption model. Additionally, this has led to a rise in the use of Microsoft Corporation’s (NASDAQ:MSFT) analytics and data services. CEO Satya Nadella has already reiterated that the AI business will surpass an annual revenue run rate of $10 billion in the next quarter.
Alger Spectra Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q3 2024 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a beneficiary of corporate America’s transformative digitization. The company operates through three segments: Productivity and Business Processes (Office, LinkedIn, and Dynamics), Intelligent Cloud (Server Products and Cloud Services, Azure, and Enterprise Services), and More Personal Computing (Windows, Devices, Gaming, and Search). During the quarter, shares detracted from performance after Microsoft reported weaker-than-expected fiscal fourth-quarter revenue growth in its Azure cloud segment. Additionally, management’s fiscal first[1]quarter 2025 Azure revenue guidance came in slightly below estimates. Despite this shortfall, management highlighted that AI contributed 7% to cloud growth, up from 6% last quarter and 3% a year ago. We continue to believe that Microsoft is well-positioned to maintain a leadership role in AI, given its innovative approach and significant growth potential.”
Overall, MSFT ranks 4th on our list of Billionaire David Tepper’s top stock picks heading into 2025. While we acknowledge the potential of MSFT, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSFT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock
Disclosure: None. This article is originally published at Insider Monkey.
Add Comment