Key Takeaways
- Burry liquidated his complete Alibaba holdings and established a substantial JD.com position
- The investor stated Alibaba must decline 50% from current prices before he reconsiders entry
- A HK$80 billion capital raise for AI projects will dilute Alibaba shareholders by 3.7%
- JD.com’s 8.3x forward P/E ratio and 10.7% FCF yield contrast sharply with Alibaba’s negative 4.2% FCF yield
- Despite the move, Morgan Stanley recently cut JD.com to Underweight with a $28 target
The investor who profited massively from the subprime mortgage collapse, Michael Burry, has completely exited his Alibaba position and redirected capital into JD.com shares.
Taking to X, Burry disclosed that he executed the portfolio swap several months back, converting his entire Alibaba stake into an expanded JD.com holding. He made clear there’s no intention to reverse course.
The catalyst was straightforward. Alibaba revealed plans for an HK$80 billion equity offeringāapproximately $10.2 billionādesignated for artificial intelligence infrastructure investments. Burry interprets this as evidence that dilutive capital raises have become standard practice for the company.
“Issuing shares is now its new paradigm,” Burry stated. He further indicated that the stock would need to crater roughly 50% below present trading levels before attracting his interest again.
Comparing the Investment Metrics
The financial data supporting this reallocation tells a compelling story. Alibaba currently commands a 25x trailing price-to-earnings multiple alongside a negative 4.2% free cash flow yield. By contrast, JD.com trades at 17.9x trailing earnings, 8.3x forward earnings, and generates a robust 10.7% positive free cash flow yield.
Additionally, JD.com offers shareholders a 3.3% dividend yield, significantly exceeding Alibaba’s modest 0.9%. Wall Street analysts project approximately 49.6% potential upside to intrinsic value for JD.com, compared with just 19.9% for Alibaba.
The Alibaba equity placement involves issuing 710 million fresh shares at HK$112.70 apiece, representing an 8.4% discount to the previous closing price. This expands the outstanding share count by roughly 3.7%. Alibaba’s stock tumbled nearly 10% following the announcement.
From a profitability perspective, Alibaba watched net income contract from $17.83 billion to $15.35 billion despite achieving 8% revenue growth. The company’s return on invested capital has deteriorated to merely 2.6%.
JD.com similarly experienced declining net income, dropping from $5.67 billion to $2.81 billion. However, analysts attribute this reduction to strategic investments in emerging business lines such as food delivery services rather than fundamental operational weaknesses.
Counterarguments and Concerns
Burry’s strategic shift hasn’t received universal endorsement. Morgan Stanley recently downgraded JD.com to Underweight, assigning a $28 price objective that falls beneath current market pricing.
Barclays analysts have raised concerns about JD.com’s concentrated exposure to electronics and household appliancesāsegments potentially vulnerable as government-sponsored trade-in programs phase out.
Regarding Alibaba, the Street consensus remains surprisingly constructive. The mean analyst price target suggests approximately 58.5% appreciation potential, while certain fair value calculations position Alibaba around $143.11, representing roughly 20% upside from today’s levels.
Burry’s transaction exemplifies a textbook value-oriented rebalancing. He’s exiting a capital-intensive business trading at premium multiples in favor of a cash-generative alternative available at discounted valuations.
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