Down 40% on AI Pressure, Michael Burry Says Alibaba Needs to Still Fall by Half

The AI spending increase has created an uncomfortable cut up in know-how shares. Traders are keen to reward corporations that may flip huge infrastructure investments into recurring income, however they’re turning into much less forgiving when these investments crush earnings and money move first. 

That pressure is very seen in China, the place weaker shopper demand, intense competitors, and a race to construct AI infrastructure are colliding. For Alibaba (NYSE:BABA | BABA Price Prediction), the end result has been a roughly 40% decline from its January excessive, a 75% plunge in quarterly revenue, and now a $10.2 billion inventory sale to finance extra AI spending. Michael Burry thinks the ache might solely be beginning.

Alibaba’s AI Wager Is Crushing Money Circulate

Alibaba’s June quarter reveals why shareholders are uneasy. Income elevated 9% year-over-year to roughly 269 billion yuan, however internet earnings plunged 75% to 10.5 billion yuan, based on Alibaba’s June-quarter earnings launch.

Capital spending rose 75% to 67.68 billion yuan ($10.1 billion), pushed by GPU procurement, larger CPU capability in anticipation of AI-agent adoption, and better chip-component costs. Free money move swung to a 44.7 billion yuan outflow from an 18.8 billion yuan outflow a 12 months earlier. That’s a brutal squeeze on profitability.

Alibaba remains to be making an attempt to help the inventory by buybacks, however that effort has slowed dramatically. The corporate spent $956 million repurchasing shares, about 92% lower than it purchased in 2025. Within the June quarter alone, it spent $162 million, an 80% decline from the prior-year period. Alibaba’s personal filings present that buybacks are more and more taking a again seat to AI infrastructure.

Mockingly, the corporate is now doing virtually the alternative of what shareholders historically need from a buyback program.

Now Alibaba Is Issuing Shares

Alibaba has introduced a placement of 710 million newly issued unusual shares for about $10.2 billion. The deal, priced at HK$112.70 per share, represented an 8.4% low cost to its earlier Hong Kong shut and quantities to roughly 3.7% dilution for current shareholders. The shares are being bought to non-U.S. traders, with the transaction anticipated to shut Aug. 26.

Extra importantly, Alibaba says 100% of the web proceeds will fund its “full-stack” AI capabilities, together with extra computing and data-center infrastructure. That creates the central funding query: Will the brand new capital generate sufficient returns to compensate shareholders for the dilution?

Alibaba’s AI and cloud enterprise provides a motive for optimism. Cloud and AI providers income rose 45% to 48.44 billion yuan within the June quarter. Administration additionally says AI funding might attain break-even inside three years.

However three years is a very long time to ask shareholders to attend whereas money move runs backward.

Burry Needs an Even Decrease Worth

Burry has already made his alternative. In a submit on X, he mentioned he had moved his entire Alibaba position into a big place in rival JD.com (NASDAQ:JD) a number of months in the past. After Alibaba’s share issuance, he mentioned issuing inventory is now its “new paradigm” and that Alibaba would wish to fall by half earlier than he would contemplate shopping for it once more.

The irony is difficult to overlook: Alibaba has spent years shopping for again its personal inventory, solely to show round and difficulty 710 million new shares to fund the AI arms race.

Chairman Joseph Tsai and CEO Eddie Wu have supplied a special sign. After the share sale, Tsai purchased about HK$81 million of inventory whereas Wu bought roughly HK$39 million. Their mixed purchases totaled about HK$118.2 million, or $15.08 million.

That’s encouraging, however it’s tiny beside a $10.2 billion capital increase.

Key Takeaway

In brief, Burry’s argument comes right down to return on invested capital. Alibaba is spending billions to construct an AI enterprise that might turn into a significant progress engine, however traders are paying for that chance by decrease earnings, detrimental free money move, slower buybacks, and three.7% dilution. The chance is actual, however so is the danger.

Sensible traders don’t must predict whether or not Alibaba will fall one other 50%. They should watch whether or not AI income begins outpacing AI spending. Till that occurs, the inventory stays a turnaround guess — not a confirmed AI winner.

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