Billionaire David Tepper Just Sold Out of Adobe and Bought This Artificial Intelligence Value Stock Instead

In turbulent times like these, it's always interesting to see what some of today's top investors are doing with their portfolios.

One of the best investors of the past 30 years has been David Tepper of Appaloosa Management. Between 1993 and 2013, Tepper averaged a whopping 40% annualized return, while more recent estimates put Appaloosa at a low- to mid-20% annualized return through today. That would even exceed Warren Buffett's returns at Berkshire Hathaway, with the caveat that Tepper's returns have been over a shorter time period, and likely with a greater tax liability due to more frequent buying and selling.

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Tepper is no doubt one of the sharpest minds in the investing business, which is why it's always a good idea to check out moves he's making -- especially brand new names he's adding to his portfolio.

In the fourth quarter, Tepper sold completely out of one artificial intelligence (AI) stock and bought another dividend-paying AI player. After a turbulent first quarter, this new buy still looks like an interesting opportunity today, as the stock hasn't moved much since Q4.

Swapping out Adobe for another AI peer

Tepper currently owns a lot of the "Magnificent Seven" stocks, along with a big stake in several of China's big tech stocks. This is likely due to Tepper's bullishness on AI, the strong market positions these large tech giants have, and their reasonable valuations.

It also appears Tepper is looking for ways to play AI beyond the Mag Seven as well. Appaloosa had taken a position in software giant Adobe (NASDAQ: ADBE) in early 2024, but completely sold out of the stock in the fourth quarter. Adobe has had a tough go recently, as its growth has slowed, leaving investors to ponder whether AI may actually be a negative disruptor to Adobe's business.

However, it doesn't appear Tepper has lost his appetite for AI stocks. Rather, he may merely see a better opportunity in a lower-priced AI stock today.

Corning gets a glowing review

Appaloosa's only new position in the fourth quarter was Corning (NYSE: GLW).

Corning is sometimes thought of as a mature tech company. As a leader in innovative glass materials, Corning is perhaps best known for making the Gorilla Glass used in smartphones or high-tech flat panel TV screens, which are mature markets.

The company's smaller segments include specialty materials, which provides specialized glass components for semiconductor, aerospace and defense, and industrial applications; environmental technologies, which supplies ceramic substrates to catalytic converters in heavy and light duty trucks; and life sciences, which makes specialty glass for laboratories. Corning also has an investment in Hemlock, a polysilicon company that makes specialty solar cells, of which Corning owns 80.5%.

However, Corning's largest segment is its optical communications segment, which made up 35.3% of sales last year and makes high-speed fiberoptic cables. It has been a fairly cyclical and low-growth business in the recent past, but AI has kick-started the segment into high gear, given the need for denser high-speed interconnects both within and between AI data centers.

AI is spurring big incremental demand in the segment. Last summer, Lumen Technologies agreed to buy 10% of Corning's optical cable supply over the next two years, in order to build out intercity connections for its customers' AI data center buildout.

Despite being Corning's largest segment, the optical segment is also now growing the fastest, up 16% last year. But buried within the segment, the enterprise portion of the optical segment grew an astounding 93% in Q4 and 49% for the full year, reaching $2 billion out of $4.7 billion in 2024 total optical sales.

However, Corning only came out with its next-gen AI optical products in June. Therefore, the higher Q4 growth figure should be more indicative of this sub-segment's current growth trajectory. Likely, this AI-fueled growth acceleration is where Tepper sees Corning's potential.

Springboard to 2026, 2028

Last year, Corning unveiled its "Springboard 2028" plan, in which management saw $5 billion in incremental revenue by the end of 2026 relative to year-end 2023, with those incremental gains rising to $8 billion by 2028. A little more than half of those gains are projected to come from the optical segment.

Interestingly, the company is already well ahead of plan. As of the fourth quarter of 2024, Corning has already grown an incremental $2.4 billion revenue run rate -- well above the $1 billion incremental growth management had anticipated by this stage of the process.

Image source: Corning.

Valuation is certainly attractive

While not super-cheap today at 19.4 times 2025 earnings estimates, Corning's valuation is certainly more modest than many other high-profile AI tech stocks. It also plays a solid 2.45% dividend, certainly higher than most AI companies.

Should Corning succeed in its Springboard growth plan, the company could reach $18.6 billion in revenue in 2026 and $21.6 billion in 2028, up from $13.6 billion in 2023. Management also noted it was targeting a core operating margin of 20% by 2026, up from 15.5% last year.

Assuming the company achieves that, along with the same $300 million net interest expense and 21% tax rate it had last year, Corning could earn $2.7 billion in 2026 core earnings and $3.2 billion in 2028. That's against today's $39 billion market cap, meaning Corning may be trading at just 14 times 2026 core earnings and 12.2 times 2028 earnings.

Of course, that assumes management hits its operating and financial targets. But it looks as though the company is actually ahead of plan, at least as of last quarter.

Maybe Tepper senses the above-trend results, projects even greater earnings growth, and realized Corning is a cheap, relatively low-risk way to play the AI revolution.

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Billy Duberstein and/or his clients have positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Adobe and Berkshire Hathaway. The Motley Fool recommends Corning. The Motley Fool has a disclosure policy.