Michael Burry Abandons Alibaba Over Broken Management Pledge

Trey Thoelcke

Mon, August 24, 2026 at 4:45 PM GMT+3 3 min read

BABA -1.37%

Quick Read

Alibaba's CFO touted $46 billion in net cash, then launched a $10 billion share sale days later, and Burry exited his entire position immediately.
BABA ADR holders absorb the dilution without access to the discounted Hong Kong placement price, with shares down 19% year to date despite 30 analyst buy ratings.
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On August 20, 2026, Alibaba (NYSE:BABA) CFO Toby Xu told investors the company held approximately $30.7 billion in net cash excluding debt with maturities beyond five years, with a net cash position of approximately $46.5 billion. He added: "This balance sheet strength gives us confidence to invest for robust growth." Days later, the company priced a roughly HK$80 billion (about $10.2 billion) share sale at HK$112.70 per share against Friday's Hong Kong close of HK$123, described as the largest follow-on equity offering by a Hong Kong-listed company on record. Burry exited his entire Alibaba position that same weekend.

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What Burry Actually Said

In his Substack post, the Scion Capital founder wrote: "I planned to move most of it back after a month or two. No longer." He added that Alibaba's price would have to "fall by half for me to get interested again" and that "I cannot bless share issuances." He expects Alibaba's return on invested capital to continue declining. In plain terms, ROIC measures the profit a company earns on every dollar it invests. Burry is saying the AI buildout is absorbing more capital than the business is currently returning on it.

Context matters. Burry had only disclosed a new Alibaba position in April 2026. This is a rapid reversal by a single investor and should be read as such.

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Three Data Points, One Direction

The sequence is what unsettled the market. Capital expenditure ran RMB 67.7 billion in the June quarter. Free cash flow was an outflow of RMB 44.7 billion, compared with an outflow of RMB 18.8 billion a year earlier. Buybacks were quietly scaled back. Now shareholders are being asked to fund the next leg.

Bull Case Remains Substantial

Alibaba Cloud external revenue growth accelerated to 45%, described on the call as a 22-quarter high, with cloud adjusted EBITDA margin at 12%. AI-related product revenue reached RMB 12.4 billion in the quarter, an annual run rate above RMB 49.5 billion, a 12th consecutive quarter of triple-digit growth, and 35% of external cloud revenue. Xu presented the return math cleanly: servers reach break-even within three years, have a five-year useful life, and are expected to generate positive free cash flow in the two years following break-even. Treat that as a testable claim.

What ADR Holders Absorb

The placement involves Hong Kong-listed shares. NYSE ADR holders absorb the dilution without access to the discounted placement price. The ADR closed Friday at $119.34, down 8.57% that session, and is down 19.0% year to date. Analysts still hold an average price target of $189.22, with 30 buy ratings.

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What to Watch Next Quarter

Two falsifiable items to watch: whether cloud-adjusted EBITDA margin expands beyond 12%, and whether the free cash flow outflow narrows from RMB 44.7 billion. If both move in the right direction, Xu's break-even math holds. If not, Burry's ROIC concern will grow louder.