Michael Burry, the investor famed for his bet against the US housing market in "The Big Short," has exited his position in Alibaba Group Holding Ltd., labeling the shares as overvalued. The Scion Capital Management founder disclosed that he is instead building a "large" position in rival online retailer JD.com Inc.
Conflict Over Capital Raising
The move follows Alibaba's announcement of a massive plan to raise approximately HK$80 billion ($10.2 billion) via a share sale. Intended to fund AI investments, this represents the largest follow-on offering by a company on record in Hong Kong.
“I cannot bless share issuances,” Burry stated in a Substack post, expressing expectations that the company's return on invested capital (ROIC) will continue to decline. He further suggested that Alibaba’s share price would need to “fall by half” before he would consider re-entering the position.
AI Spending and Financial Performance
Alibaba recently reported a 75% decline in profit for the quarter ending in June, a drop linked to ramped-up capital spending on artificial intelligence. This financial contraction has heightened investor concerns regarding the long-term profitability of the Chinese tech sector's AI pivot.
The company’s market performance reflects these challenges:
- American Depositary Receipts (ADRs) are down 18.6% for the year.
- Hong Kong-listed shares have fallen 13.9% year-to-date.
- The new offering was priced at HK$112.70 per share, a discount compared to Friday’s closing price of HK$123.
