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

Alibaba's net income plummeted 75% as capital expenditures surged 75%, resulting in a $45 billion yuan outflow in free cash flow for the most recent quarter. The analyst who correctly predicted NVIDIA's potential in 2010 now believes that Alibaba needs to experience another 50% drop in stock price before he would consider investing again.

Alibaba is raising $10.2 billion through a share sale, diluting existing shareholders by approximately 3.7%. While Alibaba's cloud and AI services revenue rose 45% to $48.44 billion yuan in the June quarter, management predicts that AI investments could reach break-even within three years, a timeframe that may be too long for shareholders to endure with negative cash flow.

Michael Burry, the same analyst who accurately predicted NVIDIA's potential years ago, has already moved his Alibaba holdings into JD.com and believes that the company needs to lose half of its value before he would consider investing again. Despite Chairman Joseph Tsai and CEO Eddie Wu's modest share purchases totaling $15.08 million, Burry argues that Alibaba's cash flow issues, underinvestment in profits, and 3.7% dilution are unsustainable risks that outweigh the potential upside.