Billionaire Hedge Fund Manager Sells Amazon, Buys Power Generation Company Amid AI Boom

David Tepper, the founder and president of Appaloosa Management, one of the most successful hedge funds in history, has made significant changes to his portfolio during the fourth quarter. In a move that suggests he is betting on the growing importance of artificial intelligence (AI) in driving demand for electricity, Tepper sold 600,000 shares of Amazon, trimming his position by 19%. At the same time, he purchased 1.4 million shares of Vistra, a power generation and retail electricity company that stands to benefit from the increasing need for AI data centers.

Amazon's Strong Earnings and Growth Prospects

Despite missing sales estimates in its adtech segment, Amazon reported strong earnings and revenue growth in the fourth quarter. Revenue increased 10% to $187 billion, operating margin expanded by more than 3 percentage points, and GAAP earnings rose 86% to $1.00 per diluted share. Management also stated that cloud revenue could have grown faster had AWS not been capacity-constrained.

Wall Street expects Amazon's earnings to grow at a rate of 21% annually over the next three years, making its current valuation of 36 times earnings look reasonable. However, Tepper's decision to sell shares of Amazon may indicate that he is rebalancing his portfolio or has lost conviction in the stock.

Vistra's Potential to Benefit from AI Data Centers

Vistra is an integrated power-generation and retail electricity company with a diverse portfolio of coal, natural gas, nuclear, and renewable energy facilities. Its 41,000 megawatts of generation capacity makes it the largest competitive power producer in the United States. Vistra primarily operates in the ERCOT (Texas) and PJM (13 eastern states) markets, which are expected to see significant growth in electricity demand due to increased manufacturing activity, electrification of the Permian Basin, and AI data centers.

While Vistra reported solid fourth-quarter financial results, with adjusted EBITDA rising 107% to $1.9 billion, its stock fell sharply after the report due to investor disappointment that the company had yet to sign deals to supply power to big tech data centers. However, some analysts believe that investors have underestimated the potential of Vistra's business model and the growth prospects for AI data centers.

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Disclosure

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.

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