Burry exits Alibaba, builds large JD.com position over valuation concerns

Michael Burry, the investor who famously bet against the U.S. housing market before the 2008 financial crisis, has divested his stake in Alibaba Group Holding Ltd. and amassed a significant position in its Chinese rival, JD.com Inc. Burry explained on his Substack that he had initially intended to gradually re-enter Alibaba, but altered his strategy after carefully considering the stock's valuation and prospects.

He expressed his disapproval of Alibaba's upcoming share issuance, which is set to raise approximately HK$80 billion ($10.2 billion) to fund AI investments. Burry predicts that Alibaba's return on invested capital will likely continue to decline, suggesting that its shares would need to drop by about half before he would contemplate buying them again.

This decision follows Alibaba's announcement of a Hong Kong share offering, the largest follow-on offering by a company in Hong Kong, underscoring the company's heavy investment in AI. The company's recent quarterly results have also raised doubts about the profitability of its AI spending, as it reported a 75% drop in profit for the quarter ended in June, while revenue increased by just 9%.

These concerns have exacerbated investor apprehensions about Alibaba's ability to generate sufficient returns from its substantial AI and cloud infrastructure investments. Burry had previously disclosed his entry into Alibaba in April. Now, he has allocated the majority of his capital to JD.com, describing his position as "large" and abandoning plans to return to Alibaba in the near future.