Michael Burry, the famed investor who correctly predicted the 2008 housing market collapse, has made a dramatic exit from Alibaba. On August 23, the legendary short seller posted a brief but pointed message on Substack: he had liquidated his entire position in Alibaba (BABA) and rotated into JD.com (JD), adding that he would only reconsider Alibaba if the stock price were to halve.

His departure came on the same day Alibaba announced a massive HK$80 billion capital raise through the placement of 710 million new shares at HK$112.70 each, marking the largest primary follow-on offering in Hong Kong stock market history. The placement, primarily subscribed by Middle Eastern and European sovereign wealth funds, was oversubscribed within the first hour of launch. The juxtaposition could not be starker: Burry demanding a 50% price drop before re-entering, while institutional investors rushed to snap up shares.

Burry had only established his Alibaba position four months earlier. While he acknowledged that Qwen's progress in low-cost general-purpose large language models was "impressive," he explicitly stated he "cannot support" the HK$80 billion share placement. His objection was not directed at Alibaba's technology, but rather at the financing path the company has chosen: using shareholder equity to fund future computing power. This critique carries additional weight given that Alibaba is not cash-strapped, sitting on approximately $46.5 billion in net cash, yet has opted to raise an additional HK$80 billion through new share issuance while simultaneously burning capital on food delivery operations and rapidly scaling AI investments. The cost to existing shareholders is an equity dilution of roughly 3.8%.

Short Seller's Verdict on Alibaba's Capital Raise

On the evening of August 23, Burry delivered his judgment on Alibaba's HK$80 billion placement: "This is yet another new paradigm where ROIC will continue to decline." In the same post, he added "I cannot support this placement," and went further by stating he would only regain interest if the stock fell by half. His concerns are not without merit when examining Alibaba's latest quarterly results. While revenue grew 9% year-over-year, net profit plummeted 75% to RMB 10.537 billion. Free cash flow outflows expanded from RMB 18.8 billion in the prior year period to RMB 44.67 billion. Meanwhile, capital expenditures surged 75% year-over-year to RMB 67.7 billion.

Yet there is another side to the data. Alibaba Cloud's external revenue grew 45% year-over-year, and AI-related product revenue has now achieved triple-digit growth for twelve consecutive quarters. The company's challenge is not that investments are failing to generate growth; quite the opposite, AI has become one of Alibaba's fastest-growing business segments. However, maintaining this growth trajectory requires escalating capital costs. Global technology companies are experiencing similar dynamics, as GPUs, HBM, data centers, power, and network infrastructure all demand substantial upfront capital investment. While the ultimate revenue potential of AI remains uncertain, computing power must be procured and data centers must be built now. Alibaba has clearly decided to double down.

What makes this financing unusual is that Alibaba does not actually lack cash. As of the latest reporting period, the company maintains approximately $46.5 billion in net cash. Alibaba's explanation is that it wishes to preserve its core cash safety buffer while continuing to increase AI investment, and in the current financing environment, ultimately chose to supplement funds through equity placement. This brings us to Alibaba's food delivery war over the past year-plus. According to market estimates, Alibaba has consumed approximately RMB 80 billion to 100 billion over the past eighteen months on instant retail and food delivery subsidies, a scale nearly equivalent to the HK$80 billion placement. From a shareholder perspective, the funds burned on the food delivery battlefield are now being replenished through 3.8% equity dilution. In other words, Alibaba has chosen to preserve its cash safety cushion while making shareholders bear part of the cost of continuing to expand AI investment. This is understandably frustrating from a shareholder's standpoint, and it may well be the crux of Burry's displeasure. He recognizes Qwen's progress but is more concerned about whether these investments will ultimately generate sufficient returns. AI can continue to grow, but if capital expenditures keep expanding, cash flow remains under pressure, and equity issuance becomes necessary, then declining ROIC is not merely an abstract concern but a direct line item in financial statements.

Why the Shift to JD.com Might Offer a Cleaner Equation

When Burry wrote about JD.com, he did not discuss models. His focus was on a different change: competition in China's delivery industry is moderating, and profit margins may recover, potentially altering the previous market narrative surrounding JD.com and Meituan. JD.com's second-quarter report, released on August 13, provided data supporting this view: revenue of RMB 346.4 billion, down 2.9% year-over-year; operating profit swung from a RMB 900 million loss to a RMB 4.5 billion profit; Non-GAAP net profit reached RMB 8.9 billion, up 20% year-over-year; and food delivery losses narrowed by more than 50% compared to the prior year. Over the past twelve months, JD.com's free cash flow reached RMB 31 billion, approximately triple the prior year's figure.

JD.com has certainly participated in the food delivery war and paid a significant price for it. Therefore, Burry's rotation from Alibaba to JD.com cannot simply be understood as moving from a "cash-burning company" to a "non-cash-burning company." The more important shift is that Burry judges this war may be entering a cooling phase, and the losses JD.com has incurred from its investments are now narrowing. Regulatory developments are moving in the same direction. On June 17, the State Administration for Market Regulation released the "Ten Measures for Regulating Subsidy Behavior on Food Delivery Platforms (Draft for Comments)," which explicitly targets long-term, large-scale subsidies. If subsidy competition gradually cools, the substantial funds invested to capture market share could potentially flow back into profits and cash flow.

Meanwhile, JD.com has not halted investment in the future. R&D spending reached RMB 7.3 billion in the quarter, up 37.7% year-over-year, accelerating for three consecutive quarters. First-half system-wide R&D investment grew 53% year-over-year. The company is also increasing AI investment, though currently focused more on scenarios directly integrated with supply chain operations such as warehouse robotics, unmanned vehicles, and JoyAI. The real difference between Alibaba and JD.com is not that one invests in AI while the other does not. Both companies are spending money and placing bets on the next phase. The distinction lies in their current stages of capital investment. Alibaba is building future AI infrastructure at scale, with capital expenditures taking priority and returns deferred to the future. JD.com, while continuing to increase R&D investment, is seeing losses from past investments begin to narrow, with profits and cash flow improving.

The two companies' approaches to equity capital could not be more different. Alibaba is raising HK$80 billion through share placement to fund its next phase of AI investment. JD.com has not initiated new equity financing; instead, it repurchased approximately $1 billion in shares during the first half of this year, with cumulative buybacks of about $13 billion since 2023, representing roughly 17% of outstanding shares. One company is expanding its share count while the other is contracting it. This is not a judgment on which strategy is definitively correct, but for an investor like Burry who seeks opportunities through cash flow and capital returns, JD.com currently presents a more calculable investment proposition. Alibaba's question is: how much return will today's investments generate in the years ahead? JD.com's question is simpler: if food delivery competition truly cools, how much profit can the already-narrowing losses release?

On the morning of August 24, Alibaba's Hong Kong-listed shares opened more than 8% lower, with investors voting with their feet. The genuinely uncomfortable aspect of this HK$80 billion placement is not that Alibaba continues to invest heavily in AI. AI is certainly worth investing in, and delaying may only make it more expensive in the future. What feels problematic is that over the past year-plus, Alibaba has spent so much on the food delivery battlefield. Looking back now, that consumption sits at nearly the same magnitude as the current HK$80 billion financing. If AI is truly the most important battle of the coming years, then every dollar spent on food delivery previously now appears more costly. One can fight many battles simultaneously, but eventually resource prioritization becomes unavoidable: what is the main battlefield that determines the future, and what is merely a flank that cannot afford to lose too badly. This is not to say food delivery should not be invested in. Instant retail has strategic value, and Alibaba cannot easily cede that market. The issue is that when AI, food delivery, and cloud infrastructure all require funding simultaneously, the company must ultimately decide which deserves the most precious capital. This HK$80 billion placement has effectively brought an internal resource allocation question directly before all shareholders. Burry chose to exit, sovereign funds chose to subscribe, and the market cast its vote with an 8% opening decline the following day. What is truly worth watching is not who made the right call this time, but how Alibaba will answer the harder question: in a situation where multiple wars cannot be easily abandoned, where should the money be spent first.