Alibaba’s (BABA) Short-Term Capex Drag Creates a 30% Valuation Discount

Alibaba Group Holding Limited (NYSE:BABA) saw a significant drag on its short-term capital expenditures, resulting in a notable 30% valuation discount according to Alluvium Asset Management's Q2 2026 investor letter. The letter, which can be accessed here, highlights Alibaba's focus on AI investments and management's confidence in continued spending.

However, the company's free cash flow has become negative due to these capital expenses. Despite the broader market strength, the fund's value declined by 1.4% in EUR terms, 2.2% in USD terms, and 3.9% in AUD terms. Alibaba's share price, currently at $109.23, has dropped 14.03% over the past month and 32.08% over the past 52 weeks, trading within a range of $91.99 and $192.67.

The fund's maintainable earnings yield has increased to 7.7%, and the stock is trading at a discount to the expected valuation.