Nvidia (NASDAQ: NVDA) has been the foundation of the artificial intelligence (AI) boom. Its graphics processing units power virtually all of the most advanced AI systems, and the company has a strong presence in adjacent markets like AI networking equipment and software development tools.
However, billionaire David Tepper sold Nvidia in the third quarter and bought a shocking AI stock: electric utility Vistra (NYSE: VST). That was a bad pun, but Tepper is a good case study for investors because his hedge fund Appaloosa more than doubled the return of the S&P 500 (SNPINDEX: ^GSPC) in the last three years.
Importantly, Tepper only sold 65,000 shares of Nvidia during the quarter, which reduced his position by just 9%. So it would be unfair to assume he lost confidence in the semiconductor company. But Vistra accounted for 2.2% of his portfolio as of Sept. 30, whereas Nvidia accounted for just 1.1%.
Additionally, the trades described were made in the third quarter, which ended more than two months ago. Investors should reevaluate Nvidia and Vistra before making any decisions.
The investment thesis for Nvidia centers on its leadership in data center graphics processing units (GPUs). The company accounts for 98% of data center GPUs by shipment volume, and those chips have become the industry standard in accelerating workloads like training machine learning models and running inference on artificial intelligence (AI) applications.
Importantly, Nvidia is more than a chipmaker. It is an accelerated computing company that builds entire data center systems comprising GPUs, CPUs, networking, and chip interconnects. The company also provides a litany of software libraries and pretrained models that streamline AI application development. That vertically integrated strategy has made Nvidia “the world’s de facto enabler of AI,” according to Susquehanna analyst Christopher Rolland.
Nvidia reported excellent financial results in the third quarter of fiscal 2025, which ended in October 2024, beating consensus estimates on the top and bottom lines. Revenue increased 94% to $35 billion amid strong demand for AI infrastructure, and non-GAAP (generally accepted accounting principles) earnings jumped 103% to $0.81 per diluted share. The company anticipates 70% revenue growth (plus or minus two points) in the fourth quarter.
Going forward, Wall Street estimates that Nvidia’s adjusted earnings will increase at 52% annually through fiscal 2026, which ends in January 2026. That makes the current valuation of 53 times adjusted earnings look quite reasonable.
