To The Moon

$Alibaba(BABA)$

Alibaba Group Holding Ltd. (NYSE: BABA) has suddenly become a battleground between two very different investment philosophies.

On one side is Michael Burry, the investor made famous by The Big Short, who has exited Alibaba and shifted his capital toward rival JD.com. Burry argues that Alibaba’s decision to issue roughly $10.2 billion of new shares to finance artificial-intelligence investment signals potentially poor returns on invested capital. He has reportedly said Alibaba would need to fall roughly 50% before he becomes interested again.

On the other side is Alibaba's own management. CEO Eddie Wu purchased 350,000 Alibaba shares for approximately $4.984 million, at an average price of $14.24 per share on the Form 4 reporting basis. Chairman Joe Tsai also purchased 720,000 shares worth about $10.29 million.

So who is right?

The answer is probably neither side is completely wrong. Burry is highlighting a genuine capital-allocation risk, while management is betting that today's enormous AI spending will create a much larger and more profitable Alibaba tomorrow.

Performance Overview and Market Feedback

Alibaba shares closed at approximately $118.47 on August 24, 2026, down 0.73%. That relatively small daily decline masks a much more dramatic recent repricing: Alibaba's shares fell sharply after the company announced its HK$80 billion share placement, with Hong Kong shares dropping about 8.5% initially.

The market's reaction is understandable. Alibaba is raising approximately $10.2 billion by issuing 710 million new shares at HK$112.70, an 8.4% discount to the previous closing price. The new shares represent roughly 3.6% of the enlarged share count. The money will be used for AI infrastructure, chips, models and related investments.

The irony is that Alibaba's AI story is simultaneously getting stronger and more expensive. Cloud revenue increased 45% year over year to approximately $7.1 billion, while cloud adjusted EBITA increased 133%, and the segment's adjusted EBITA margin reached roughly 12%.

That combination explains the disagreement. Investors can see genuine AI traction, but they are increasingly asking whether Alibaba is spending too much capital to achieve it.

Current Fundamentals and Cash Flow

Alibaba's latest quarter was mixed rather than simply bad.

Revenue for the June 2026 quarter reached RMB268.95 billion, approximately $39.6 billion, representing 9% year-over-year growth. But GAAP net income fell roughly 75% to about RMB10.5 billion, while non-GAAP net income declined 38% to RMB20.7 billion.

The biggest problem was cash consumption. Capital expenditure jumped 75% to RMB67.7 billion, largely because Alibaba is expanding computing capacity and purchasing chips and other infrastructure for AI. Free cash flow swung to a RMB44.7 billion outflow, compared with an RMB18.8 billion outflow in the prior-year quarter.

However, this does not yet look like a balance-sheet crisis.

As of June 30, Alibaba held approximately RMB474.5 billion ($69.9 billion) in cash and other liquid investments. Management also reported approximately $30.7 billion of net cash, or roughly $46.5 billion when excluding debt with maturities beyond five years.

That liquidity gives Alibaba considerable room to fund the AI buildout. The question is not whether Alibaba can afford the investment. The question is whether the investment will earn an adequate return.

Financial Highlights and Valuation

At roughly $118 per ADS, Alibaba is no longer an obviously expensive stock relative to its size, cash position and earnings power. But it is also not the screaming bargain it appeared to be when the market assigned much lower valuations to Chinese technology companies.

The latest quarter produced non-GAAP diluted earnings of approximately $1.26 per ADS, down 42% year over year. Annualizing that figure gives roughly $5.00 of adjusted earnings per ADS, although this approach is deliberately conservative because current earnings are being depressed by unusually heavy AI investment.

Using that simple annualized figure, BABA trades around 24 times depressed adjusted earnings. That valuation would look reasonable if Alibaba can return to strong earnings growth, but much less attractive if AI investment permanently reduces free cash flow.

There is also a hidden asset-value argument. Alibaba has approximately $70 billion of cash and liquid investments against a much smaller net-debt position. The company's balance sheet therefore provides meaningful support to the equity value.

The market is effectively asking investors to pay for the future AI opportunity while accepting substantially lower near-term cash generation.

What’s Behind the Sudden Sell-Off?

There are four major reasons.

First, dilution. Alibaba is issuing 710 million new shares at a discount. Existing shareholders are being diluted, even though the funds are being used for potentially productive investment.

Second, AI capex has exploded. RMB67.7 billion of quarterly capex is an enormous number. Investors are worried that Alibaba could end up in a capital-intensive AI arms race against Tencent, Baidu, ByteDance and global technology companies without achieving attractive returns.

Third, profitability has deteriorated. Revenue grew 9%, but net income collapsed 75%. That divergence makes the market skeptical about the quality of growth.

Fourth, Burry's criticism reinforces the narrative. Burry's concern is not simply that Alibaba is spending heavily. His deeper argument is that issuing equity to fund investment can be a sign that management expects returns from incremental capital to be less attractive than the market assumes.

But there is an important counterargument.

The share placement was reportedly nearly three times oversubscribed, attracting significant demand from sovereign wealth funds and long-only investors. That suggests sophisticated institutional investors are not necessarily viewing the transaction as evidence that Alibaba is broken.

CEO Buying: A Strong Signal, But Not a Guaranteed Bottom

Eddie Wu's approximately $4.98 million purchase is meaningful because he is the person ultimately responsible for Alibaba's AI strategy.

More importantly, the CEO's purchase came almost immediately after the market reacted negatively to the share placement. That makes the transaction more interesting than an ordinary insider purchase.

Chairman Joe Tsai bought another approximately $10.29 million of shares, while recent reports also indicate that founder Jack Ma purchased more than HK$600 million of Alibaba shares.

This creates a powerful signal: Alibaba's insiders appear to believe the market reaction has become too pessimistic.

But investors should not blindly follow insider purchases. A $5 million purchase is small relative to Alibaba's overall market value, and executives can remain optimistic about their company even when shareholders face poor returns.

Insider buying is therefore a positive confirmation signal, not an investment thesis by itself.

Margin of Safety

For a value investor, the most important question is not whether Alibaba can become an AI winner.

It is:

What price gives me enough protection if the AI investment produces mediocre returns?

At approximately $118, I would estimate Alibaba's normalized intrinsic value at roughly $145 per ADS, but with a wide uncertainty range.

A conservative scenario could put fair value around $120-$130, assuming weaker e-commerce growth, high AI capex and only moderate improvement in cloud profitability.

A base case could support $140-$155, assuming Alibaba's cloud business continues growing rapidly, AI monetization accelerates and capex eventually normalizes.

A bullish scenario could justify $170-$190+, if Alibaba turns Qwen and AI Cloud into major high-margin businesses while maintaining its e-commerce cash engine.

Against a $145 midpoint valuation, the stock at $118 offers roughly 19% upside, which is not a huge margin of safety for a company facing this much uncertainty.

For that reason, I would not consider $118 an aggressive value-entry price.

Intrinsic Value

My base-case intrinsic value is approximately $145 per BABA ADS.

I would frame the valuation this way:

ScenarioEstimated Intrinsic ValueKey AssumptionBear case$95-$110AI returns disappoint; FCF remains weakConservative$120-$130AI succeeds but capex remains elevatedBase case$140-$155Cloud/AI growth + normalized marginsBull case$170-$190+AI becomes a major high-margin growth engine

The most important variable is not revenue growth.

It is return on incremental AI capital.

Alibaba's management has stated that its AI infrastructure investments can reach breakeven in roughly three years, after which the equipment could generate positive free cash flow during the remaining useful life.

If management is right, today's negative free cash flow represents an investment cycle rather than permanent value destruction.

If Burry is right, Alibaba could be entering a period where enormous capital expenditures produce mediocre returns.

That is the central investment debate.

Verdict: Who’s Wrong?

My verdict: Burry is probably too bearish on the valuation, but his warning about capital allocation should not be ignored.

Alibaba at around $118 does not look fundamentally broken. Revenue is growing, cloud is accelerating, AI-related revenue is expanding rapidly, and the company still possesses an enormous liquidity cushion.

At the same time, the market is justified in demanding a higher return on capital before awarding Alibaba a premium multiple.

The CEO's purchase tells me that management believes the sell-off has gone too far. Burry's decision tells me that the downside risks have become serious enough that investors should not simply assume AI spending automatically creates shareholder value.

My preferred entry zone is $95-$110.

At $110, the stock begins to offer a more attractive margin of safety against a $145 base-case intrinsic value. At $100, the risk/reward becomes considerably more compelling. Below $95, I would view Alibaba as potentially entering deep-value territory, assuming the underlying business and Chinese regulatory environment remain stable.

At $118-$120, I would rate BABA as a HOLD / selective BUY rather than a strong BUY.

The stock needs either a lower price or clearer evidence that AI capex is translating into sustainable free cash flow.

Conclusion: The Real Battle Is ROIC, Not AI

Alibaba is not simply a story about whether China wins the AI race.

It is a story about how much Alibaba has to spend to win it.

The bull case is compelling: 45% cloud growth, rapidly increasing AI-related revenue, expanding cloud margins, a huge installed e-commerce ecosystem and approximately $70 billion of liquid investments provide Alibaba with substantial strategic firepower.

The bear case is equally clear: profits are collapsing, free cash flow has turned sharply negative, capex has surged 75%, and the company has chosen to dilute shareholders by approximately $10.2 billion to finance the next phase of AI expansion.

So who is wrong?

Burry may be wrong about Alibaba's ultimate value, but he is asking exactly the right question.

And management may be right about AI, but it still has to prove that AI investment can generate returns greater than its cost of capital.

For long-term investors, that makes Alibaba interesting—but not yet a no-brainer.

Bottom line:

• Current price: ~$118.47

• Base intrinsic value: ~$145

• Bear-case value: ~$95-$110

• Bull-case value: ~$170-$190+

• Preferred entry zone: $95-$110

• Below $100: Attractive value territory

• $110-$120: Selective accumulation

• Above $130: Wait for stronger evidence of AI returns

• Verdict: Cautiously bullish, but demand a margin of safety

The next few quarters will determine whether Alibaba's AI spending becomes one of the company's greatest strategic investments—or the capital-allocation mistake Michael Burry believes it could be.