David Tepper’s Appaloosa Management is primarily comprised of the portfolio manager’s personal wealth after returning most of its foreign investments to clients in recent years. This means that the moves in her portfolio represent what Tepper thinks are the best opportunities for her return, not what she needs to do to meet client expectations. This can make it one of the most valuable funds to follow for retail investors trying to learn what the best investors in the world are doing.
During the fourth quarter, Tipper made a big bet Micron Technology(NASDAQ: MU )The love of artificial intelligence has been growing in the last few months. Tepper also made a new position in another memory chip play that could interest some investors. Here’s what you need to know.
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During the fourth quarter, Tepper added 1 million shares of Micron to the portfolio, making the stock one of his largest holdings. He also bought call options representing another 250,000 shares of semiconductor stock. Another AI memory chip investment Tepper made was 1.875 million shares iShares MSCI South Korea ETF(NYSEMKT: EWY ).
While this ETF tracks an index of more than 80 stocks in the country, it is dominated by only two. Samsung Electronics and SK Hynix Accounts for more than 48% of total fund value. Together with Micron Technology, these three companies account for practically all memory chip production in the world.
In fact, the performance of Samsung and SK Hynix has largely dominated ETF returns. So far, the fund’s price has risen in line with Micron’s. Both are up about 50% on the back of strong earnings results and positive outlook, fueled by a continued decline in memory chips, leading to higher prices.
Taper’s increased investment in memory chip makers indicates a belief that the current demand cycle could extend beyond current market expectations. This can lead to higher income in the long run.
The iShares South Korea ETF offers investors an alternative way to buy during periods of increased demand for memory chips, but investors should be aware that cyclical declines are expected, and they should not overpay.
With both Micron and the iShares ETF already up 50% in 2026, investors aren’t getting nearly the same price as Taper did. Still, if demand cycles for memory chips extend well into the next few years, it might be worth paying for the stock.
All three companies are investing to increase capacity and replace existing capacity to meet the demand for high-bandwidth memory (HBM). HBM chips are packed with GPUs and other AI accelerators. Their main mission is to reduce the barrier to data access in AI training and analysis. As language modules become larger and use cases expand, the need for larger amounts of faster memory chips has led to a greater increase in demand.
It takes several years for new foundries to come online and start producing additional chips. As a result, the memory chip shortage can be expected to end well into 2027. Of course, memory chip buyers are well aware of this, and some may be ordering or stockpiling more chips at this time so that leading competitors can try and avoid higher prices in the next few quarters. This creates artificially high demand now at the expense of lower demand in the future.
With new supply coming online from all three in late 2027, we could see a significant shift in the supply/demand balance by 2028 unless there is another reason for increased demand. It’s inherently impossible to predict, so investors shouldn’t be willing to pay high multiples of the memory chip maker’s earnings, as there’s a lot of uncertainty about how sustainable those earnings will be.
Shares of Micron trade for 12.6 times future earnings estimates, which is a relatively high multiple for a mid-term stock. Shares trade for 9.6 times 2027 earnings estimates, suggesting that investors currently expect the earnings cycle to extend well into the end of next year.
SK Hynix shares are significantly less expensive. Its shares trade for 5.9 times earnings estimates for this year. But Samsung shares are priced at 9.8 times earnings expectations. Both still look a bit overpriced given expectations for a significant slowdown in earnings growth next year, signaling the maturity of the demand cycle.
While the iShares Korea ETF offers an attractive way to invest in the memory chip market, it also looks overstretched this year after a rally in shares of SK Hynix and Samsung. As such, it’s hard to recommend following the taper right now, but it’s at least worth keeping an eye on both the Micron and iShares ETFs.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has and offers positions in Micron Technology. Motley Fool has a disclosure policy.
Billionaire David Tepper Triples His Share in Micron, Takes It Ahead of AI Memory Play Originally Posted by Motley Fool
