Source: Fortune
Summary
Michael Burry, founder of Scion Capital Management, called Alibaba Group Holding Ltd. shares overvalued and said he exited his position to build a “large” stake in JD.com Inc. Burry, known for his 2008 housing market bet, said Alibaba’s share price would need to fall by half for him to re-enter. Alibaba plans to raise $10.2 billion via a share sale to fund AI investments. The company reported a 75% profit decline for the quarter ended June, and its shares have fallen significantly this year. Burry also criticized share issuances, saying he expects declining returns on invested capital.
Our Reading
The numbers tell one story.
Burry sold Alibaba, bought JD.com.
Alibaba raised $10.2 billion.
Shares down 18.6% this year.
Burry says Alibaba needs to fall 50% to interest him again.
The market has already priced in some pessimism.
Author: Evan Null
Michael Burry’s Move
Michael Burry, the investor known for his bet against the U.S. housing market, has moved his capital from Alibaba to JD.com. His decision to exit Alibaba comes after the company announced a $10.2 billion share sale to fund AI investments. Burry, who previously took a position in Alibaba, now sees the stock as overvalued and has shifted his focus to a rival. His comments suggest a lack of confidence in Alibaba’s current valuation and future returns.
Alibaba’s Share Sale
Alibaba is raising about HK$80 billion, or $10.2 billion, through a share sale, making it the largest follow-on offering in Hong Kong’s history. The company is using the funds to invest in artificial intelligence, a key area of growth for the tech sector. However, Burry criticized the move, saying he cannot support share issuances. He also expressed concerns about declining returns on invested capital, a sign of broader skepticism about Alibaba’s long-term prospects.
Profit Decline and Investor Concerns
Alibaba reported a 75% drop in profits for the quarter ending in June, driven by increased spending on AI initiatives. This decline has raised concerns among investors about the company’s ability to maintain profitability. The company’s American Depositary Receipts have fallen 18.6% this year, and its Hong Kong-listed shares have dropped 13.9%. These numbers reflect a broader trend of uncertainty in the Chinese tech sector.
Burry’s Previous Position
Burry had previously disclosed that he built a new position in Alibaba in April. However, his recent comments suggest a change of heart. He now views the stock as overvalued and has decided to exit. His decision to shift to JD.com indicates a preference for a different player in the e-commerce space. This move highlights the volatility of investor sentiment in the tech sector and the impact of market conditions on investment decisions.
Market Reaction
Alibaba’s stock has been under pressure, with its shares falling significantly in both the U.S. and Hong Kong markets. The company priced its share offering at HK$112.70, below the closing price of HK$123 on Friday. This suggests that investors may be cautious about the company’s future performance. Burry’s comments add to the skepticism, as he remains unconvinced about the long-term value of Alibaba’s stock.
