Billionaire David Tepper waved his fist and sold off shares of Nvidia and Alphabet last quarter. Here are the "Magnificent Seven" stocks he bought.

Billionaire David Tepper has made a name for himself on Wall Street. He founded the hedge fund Appaloosa Management back in 1993 with him at the helm. He has been called "arguably the greatest hedge fund manager of his generation" and has consistently outperformed his peers.

He correctly predicted the collapse of the real estate market and the resulting financial crisis that led to the Great Recession of 2008. He also bought bank stocks during the downturn, a strategy that ultimately yielded significant profits for Appaloosa investors. With a resume like that, it's no wonder many investors are interested in his moves.

Tapper significantly reduced its holdings in the fourth quarterINVISTA (NASDAQ: NVDA)(math.) andAlphabet((NASDAQ: GOOGL) (NASDAQ: GOOG)), while choosing to increase their holdings in the other two companies in the "Big Seven", has caused some concern.

Changing Hands

During the fourth quarter, Tepper made some significant adjustments to the upper echelons of Appaloosa's portfolio, trimming his stake in Nvidia by 23%. (Apparently, he remains bullish on the stock's upside, as the hedge fund still owns 790,000 shares valued at approximately $678 million.) Nvidia remains Appaloosa's fourth-largest holding, with nearly 7% of the portfolio. Nvidia remains Appaloosa's fourth largest holding, accounting for nearly 7% of the portfolio.

The sale of Nvidia is probably a well thought out move by Tepper. After all, Nvidia was up 2,39% last year, at 65 times P/E and 27 times sales, so its valuation is very high.

Tepper also trimmed its stake in Alphabet by 16%, but it remains the fund's seventh-largest holding. appaloosa now owns 2.3 million shares valued at about $388 million.

However, in this case, there is no obvious catalyst to explain his decision to sell. As of the end of the year, the stock was still priced as a car name, with a P/E of 24x. He may have been concerned about the timing of the rebound in the digital ad market, which accounts for the bulk of Alphabet's revenues, or he may have wondered how artificial intelligence would ultimately affect Google's near monopoly in search.

Top 7 Stocks He's Buying

Tapper increased his holdings in two of Appaloosa's top three holdings, which isn't surprising since he clearly remains bullish on the prospects for both stocks.

Microsoft (NASDAQ resonance code: MSFT)Microsoft has increased its stake in Appaloosa by 41 TP3T, reinforcing the hedge fund's position as the second-largest holding in the company. This brings the total number of shares held to 1.7 million, now valued at approximately $710 million, or 11.3% of Appaloosa's holdings.Microsoft's investment in Chat-GPT creator OpenAI, which integrates generative AI functionality into its wide range of productivity tools for the workplace, has arguably ushered in the AI revolution.

But the biggest opportunity may be its AI-enabled digital assistant, Copilot. microsoft has debuted a number of job-specific versions of Copilot to help automate time-consuming tasks. The company has gained market share in cloud computing as a result of strong demand for its AI tools.

At the end of the fourth quarter, Microsoft shares were trading at a slight premium of 34 times sales, but this valuation is still reasonable given its rapid growth and earnings potential in the AI market.

Amazon (NASDAQ resonance code: AMZN)is the second of Tapper's "Magnificent Seven Steps". He added 5%, bringing Appaloosa's aggregate holdings to 3.95 million shares. At a current value of approximately $711 million, these shares represent 11% of the portfolio. as the undisputed leader in cloud infrastructure, Amazon has a large following for its artificial intelligence products and services.

The company has released a number of useful tools on its e-commerce platform to streamline the process of selling goods and buying ads. In addition, Amazon has long been utilizing artificial intelligence systems to manage its online retail business, which can help it maintain adequate inventory levels, provide relevant recommendations, schedule more efficient delivery routes, and more.

And, at the end of the fourth quarter, Amazon's stock was trading at less than three times sales, which is a bargain.

A Timely Investment Lesson

So far, Tapper's moves have yielded mixed results. So far this year, Nvidia's shares have risen by 80%, keeping it the undisputed leader of the "Big Seven", while Alphabet's shares have risen by 11%, and over the same period Amazon and Microsoft have risen by 20% and 12% respectively. If Tepper had made no changes to his allocation to these stocks, he would be in better shape.

This is a lesson for investors. If the investment philosophy of a stock you own hasn't changed - even if it's at a prohibitively high valuation - sometimes it's best to stick with it. The AI revolution is just beginning, and while competition is growing, Nvidia's AI processors are still the best in the industry. Alphabet has a long history of successfully deploying AI algorithms to advance its business goals, and there's no evidence that this time will be any different.

Influential economist John Maynard Keynes is reported to have said, "Markets can remain irrational longer than you can remain solvent." I take this to mean that it's better to make investment decisions not based on what Big Pan expects, but to focus on the company's prospects.

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John Mackey, former chief executive officer of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors.Suzanne Frey, an Alphabet executive, is a member of The Motley Fool's board of directors.Danny Vena serves on the boards of Alphabet, Amazon, Microsoft and Nvidia. Danny Vena works at Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool holds recommendations for Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: Microsoft January 2026 $395 Call Option Long and Microsoft January 2026 $405 Call Option Short. The Motley Fool has a disclosure policy.

Billionaire David Tepper sold off Nvidia and Alphabet stock in a big way last quarter. Here are the "Magnificent Seven" stocks he bought. Originally published by The Motley Fool.