The AI spending boom has created an uncomfortable split in technology stocks. Investors are willing to reward companies that can turn massive infrastructure investments into recurring revenue, but they are becoming less forgiving when those investments crush profits and cash flow first.
That tension is especially visible in China, where weaker consumer demand, intense competition, and a race to build AI infrastructure are colliding. For Alibaba (NYSE:BABA | BABA Price Prediction), the result has been a roughly 40% decline from its January high, a 75% plunge in quarterly profit, and now a $10.2 billion stock sale to finance more AI spending. Michael Burry thinks the pain may only be starting.
Alibaba’s AI Bet Is Crushing Cash Flow
Alibaba’s June quarter shows why shareholders are uneasy. Revenue increased 9% year-over-year to roughly 269 billion yuan, but net income plunged 75% to 10.5 billion yuan, according to Alibaba’s June-quarter earnings release.
Capital spending rose 75% to 67.68 billion yuan ($10.1 billion), driven by GPU procurement, higher CPU capacity in anticipation of AI-agent adoption, and higher chip-component prices. Free cash flow swung to a 44.7 billion yuan outflow from an 18.8 billion yuan outflow a year earlier. That’s a brutal squeeze on profitability.
Alibaba is still trying to support the stock through buybacks, but that effort has slowed dramatically. The company spent $956 million repurchasing shares, about 92% less than it bought in 2025. In the June quarter alone, it spent $162 million, an 80% decline from the prior-year period. Alibaba’s own filings show that buybacks are increasingly taking a back seat to AI infrastructure.
Ironically, the company is now doing almost the opposite of what shareholders traditionally want from a buyback program.
Now Alibaba Is Issuing Shares
Alibaba has announced a placement of 710 million newly issued ordinary shares for approximately $10.2 billion. The deal, priced at HK$112.70 per share, represented an 8.4% discount to its previous Hong Kong close and amounts to roughly 3.7% dilution for existing shareholders. The shares are being sold to non-U.S. investors, with the transaction expected to close Aug. 26.
More importantly, Alibaba says 100% of the net proceeds will fund its “full-stack” AI capabilities, including additional computing and data-center infrastructure. That creates the central investment question: Will the new capital generate enough returns to compensate shareholders for the dilution?
Alibaba’s AI and cloud business offers a reason for optimism. Cloud and AI services revenue rose 45% to 48.44 billion yuan in the June quarter. Management also says AI investment could reach break-even within three years.
But three years is a long time to ask shareholders to wait while cash flow runs backward.
Burry Wants an Even Lower Price
Burry has already made his choice. In a post on X, he said he had moved his entire Alibaba position into a large position in rival JD.com (NASDAQ:JD) several months ago. After Alibaba’s share issuance, he said issuing stock is now its “new paradigm” and that Alibaba would need to fall by half before he would consider buying it again.
The irony is hard to miss: Alibaba has spent years buying back its own stock, only to turn around and issue 710 million new shares to fund the AI arms race.
Chairman Joseph Tsai and CEO Eddie Wu have offered a different signal. After the share sale, Tsai bought about HK$81 million of stock while Wu purchased roughly HK$39 million. Their combined purchases totaled about HK$118.2 million, or $15.08 million.
That is encouraging, but it is tiny beside a $10.2 billion capital raise.
Key Takeaway
In short, Burry’s argument comes down to return on invested capital. Alibaba is spending billions to build an AI business that could become a major growth engine, but investors are paying for that opportunity through lower profits, negative free cash flow, slower buybacks, and 3.7% dilution. The opportunity is real, but so is the risk.
Smart investors don’t need to predict whether Alibaba will fall another 50%. They need to watch whether AI revenue begins outpacing AI spending. Until that happens, the stock remains a turnaround bet — not a proven AI winner.
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