Michael Burry has sold his Alibaba position and built what he described as a large position in JD.com instead, writing on Substack that the HK$80 billion share sale announced on Sunday was the reason.

"I cannot bless share issuances," he wrote. He said Alibaba's shares would need to fall about half before he would consider buying them back, and that the company's return on invested capital was likely to continue declining.

We led Sunday's front page with Alibaba asking shareholders for $10.2 billion to keep spending on artificial intelligence. This is the argument on the other side of that, from someone who had money in it until this week.

What changed for him

Burry disclosed the Alibaba position in April. According to his account he had originally expected to return most of the investment within a month or two, then reassessed and changed course on valuation.

The mechanism of his objection is worth separating from the conclusion. He is not saying Alibaba should not invest in AI. He is saying that funding it by issuing stock transfers value away from existing holders, and that a company whose return on invested capital is falling is precisely the company for which issuing equity to invest more is hardest to justify.

Return on invested capital measures the profit a business generates per dollar of capital it employs. If it is declining while capital employed is rising, each incremental dollar is earning less than the last. Whether that pattern reverses depends on whether the AI spending eventually produces the returns the company projects, which is the same open question everyone is looking at from a different angle.

The numbers he was looking at

Alibaba's second-quarter net profit fell 75 percent from a year earlier while revenue grew 9 percent. That combination, revenue up and profit sharply down, is the signature of heavy capital spending running through the income statement.

The stock had already been weak. Alibaba's American depositary receipts were down 18.6 percent for the year and fell 8.6 percent on Friday. The Hong Kong line was down 13.9 percent for the year, closing at HK$123 on Friday against a placement price of HK$112.70.

What his view is and is not

Burry is one investor. He is a well-known one with a public platform, which is why the move is being reported, and that is also the reason to be careful with it. A published position is not an analysis of value, it is a decision by one person with a particular time horizon, and investors who announce trades have a stake in how those trades are received.

He also gave a specific and testable condition rather than a mood: about half. That is more useful than most such statements, because it can be checked against what happens.

Notably, his objection is to the financing rather than to Chinese e-commerce. He moved into JD.com, a competitor in the same market and the same economy, which narrows what the trade is actually a bet on. It is a bet about capital allocation, not about China.

The thing to watch instead

Whether Burry is right will not be settled by the share price over the next few weeks. It will be settled by whether Alibaba's return on invested capital stops falling.

That figure is published, it is calculable from the filings, and it is the number his argument rests on. Anyone who wants to hold a view on this has the same data he does.

This story reports an investor's position and reasoning. It is not investment advice and Boursel takes no view on the merits of either stock.