Alibaba shares plunge as Burry exits stake, shifts to JD.com

Alibaba shares experienced a significant decline on Monday after Michael Burry, a prominent investor, announced the sale of his entire position in the Chinese e-commerce giant and transferred the capital to JD.com. Burry's move came amid heightened pressure from Alibaba's $10.2 billion share placement aimed at funding AI investments.

Shares of the e-commerce behemoth dropped 9.67% to HK$111.10, marking their lowest level since July 30, outperforming only the broader Hang Seng Index, which fell 2.15%. Meanwhile, JD.com shares also experienced a decline of 2.08% to HK$112.80.

Michael Burry, renowned for his bet against the U.S. housing market before the 2008 financial crisis, revealed his shift in investment strategy on his Substack platform. He disclosed that he had moved his entire Alibaba position into JD.com, significantly boosting his holdings in the rival company. Initially, Burry had intended to reallocate a portion of his funds back to Alibaba within one or two months, but he revised his plan following a reassessment of the stock.

Burry expressed his inability to support Alibaba's latest share issuance, expressing concerns over its return on invested capital, which he anticipated would continue to decline as the company allocates more funds into AI development. He further stated that Alibaba's shares would likely need to drop by approximately half before he would reconsider purchasing them.

The significant share placement, priced at HK$112.70 each, represented the largest primary follow-on offering by a Hong Kong-listed company, raising HK$80 billion ($10.2 billion). Alibaba allocated the capital to bolster its full-stack AI capabilities and infrastructure to strengthen its position in China's AI race. However, the capital raise coincided with Alibaba's June-quarter results, which showed a substantial decline in net profit, down about 75% year-over-year, despite a 9% increase in revenue driven by capital spending on AI infrastructure and computing capacity.

The additional shares issued would increase Alibaba's share count by about 3.7%, introducing near-term dilution for existing shareholders. Despite this dilutive effect, Alibaba management argued that the investment would support longer-term growth. Burry's decision to transfer his funds to JD.com adds a new dimension to the ongoing debate about Alibaba's AI strategy.

He effectively challenges the valuation placed on the stock, contending that the returns generated by the extra capital might not justify the current investor sentiment. Burry posits that JD.com could thrive in a more rational competitive environment within China's delivery and e-commerce market, potentially yielding higher margins compared to Alibaba.