Billionaire David Tepper of Appaloosa Tripled His Stake in Micron but Has Been Dumping a Historically Cheap AI Stock Over the Last Year

David Tepper tripled Appaloosa's Micron position in Q4 by buying ~1,000,000 shares to 1.5M total, making Micron the fund's fourth-largest holding; Micron reported a 56% gross margin in fiscal Q1 (ended Nov. 27, 2025) vs 38.4% a year earlier and trades at a forward P/E of ~9 (as of Mar 13). Simultaneously, Appaloosa sold 1,312,069 Alibaba shares in Q4, cutting its stake by 57% in 2025; Alibaba trades at a forward P/E of ~15 and is noted as cash-rich, though geopolitical/tariff risk may have influenced the trimming.

Analysis

Micron's strength is less a one-company story and more a supply-side bottleneck play: whoever controls high-bandwidth memory capture outsized economics and forces adjacent nodes (fabs, substrate, test) into capacity cycles that take 18–36 months to resolve. That structural lag means margins can stay elevated longer than typical DRAM cycles, but it also invites large-cap competitors and contract manufacturers to accelerate capacity — a classic margin-compression trap once new supply comes online.

Near-term catalysts to watch are customer inventory turns at hyperscalers, announced HBM capacity expansions from non-Micron suppliers, and any shifts in GPU architecture that reduce HBM intensity per rack. These are binary over 3–12 months: if inventories normalize or design wins favor on-package alternatives, pricing could mean-revert quickly; conversely, multi-year design cycles and OEM stickiness support upside through 2027.

Tepper’s rotation away from large China-exposed names signals a flows-driven re-rating: real money reallocations into domestic AI infrastructure stocks can create momentum that outpaces fundamentals in the next 1–6 months, then snap back when capex responses appear. The contrarian case is that the market underestimates how fast competitors can re-enter HBM economics and that Alibaba’s downside is cushioned by cash and cloud AI exposure — so outright binary bets on Chinese downside are high-risk without hedging.

Key Decisions for Investors

• Long MU via options: Buy a 9–12 month MU call spread (buy near-ATM, sell ~1.3x) sized to 1.5–3% of NAV. Rationale: captures asymmetric upside from continued HBM tightness with defined max loss (premium). Trim/roll if headline ASPs drop two consecutive quarters or if suppliers announce >20% incremental HBM capacity within 12 months.
• Pair trade (momentum rotation): Go long MU equity (1–2% NAV) and finance with a hedge-sized bearish Alibaba position — implement via a 9–12 month BABA bear put spread (sell lower strike). Timeframe 6–12 months; reward if AI-infra flow rotation continues. Limit tail risk by capping short BABA notional to <50% of MU long exposure and buy a protective call if BABA rallies >25% from entry.
• Tactical hedge against margin reversion: Buy short-dated MU puts (1–3 months) sized small (0.5% NAV) to protect the long exposure around earnings/capacity announcements. These act as insurance for fast ASP swings; if not triggered, roll into longer protection after a material sell-off.
• Avoid naked short of China AI names without policy hedge: If pursuing a bearish China/AI stance, prefer structured downside (put spreads or collars) rather than outright shorts due to policy and cash-balance asymmetry. Target horizon 6–18 months and size conservatively (<=2% NAV) given event-risk.