The trophy of the AI arms race has now become a shackle of capital.
Over the past two months, the market has been stuck in a vacuum over whether AI can pull off a complete commercial closed-loop: the euphoria has cooled, and the logic has shifted from “whoever spends the most CapEx gets the valuation first” to a punitive mode—“CapEx consumes FCF, and the ROI is unclear.”
First, the U.S. stock market played out this scene: Google’s free cash flow turned negative, so capital moved to punish it and reward Apple. Now, China’s internet giants—these capital-spending patrons—are being boiled in the same pot.
Alibaba’s CapEx surged sharply this quarter, and FCF has turned into consecutive net outflows. The enormous AI compute and infrastructure spending simply cannot form a profit closed-loop of comparable scale in the short term, while offshore cash is being burned thinner and thinner. The global market was already skeptical, yet Alibaba also announced substantial share placements and convertible bond financing—essentially directly diluting existing shareholders. Buybacks on one side, financing dilution on the other: two-sided squeeze, and the trap is set.
The bear strategist Michael Burry even trimmed his stake or exited Alibaba entirely, while adding and increasing his position in JD.com. The logic is the same as the shift investors made from Google to Apple: whoever exercises restraint in expanding the balance sheet, and doesn’t use FCF to chase the AI arms race—someone who even decides to borrow money rather than burn it—will have a more certain buyback plan. The market now treats the entity with greater certainty as a safe haven.
Of course, you could argue that if you don’t build infrastructure now, you’ll be left behind at the table in the future. That argument has held for the past three years. But in this window, the market only needs one piece of proof that a closed-loop is possible—otherwise, grand narratives can’t drive capital to charge again.
#MutualFollowingAndMutualFans# #AnyoneWhoFollowsWillGetAReply#
Over the past two months, the market has been stuck in a vacuum over whether AI can pull off a complete commercial closed-loop: the euphoria has cooled, and the logic has shifted from “whoever spends the most CapEx gets the valuation first” to a punitive mode—“CapEx consumes FCF, and the ROI is unclear.”
First, the U.S. stock market played out this scene: Google’s free cash flow turned negative, so capital moved to punish it and reward Apple. Now, China’s internet giants—these capital-spending patrons—are being boiled in the same pot.
Alibaba’s CapEx surged sharply this quarter, and FCF has turned into consecutive net outflows. The enormous AI compute and infrastructure spending simply cannot form a profit closed-loop of comparable scale in the short term, while offshore cash is being burned thinner and thinner. The global market was already skeptical, yet Alibaba also announced substantial share placements and convertible bond financing—essentially directly diluting existing shareholders. Buybacks on one side, financing dilution on the other: two-sided squeeze, and the trap is set.
The bear strategist Michael Burry even trimmed his stake or exited Alibaba entirely, while adding and increasing his position in JD.com. The logic is the same as the shift investors made from Google to Apple: whoever exercises restraint in expanding the balance sheet, and doesn’t use FCF to chase the AI arms race—someone who even decides to borrow money rather than burn it—will have a more certain buyback plan. The market now treats the entity with greater certainty as a safe haven.
Of course, you could argue that if you don’t build infrastructure now, you’ll be left behind at the table in the future. That argument has held for the past three years. But in this window, the market only needs one piece of proof that a closed-loop is possible—otherwise, grand narratives can’t drive capital to charge again.
#MutualFollowingAndMutualFans# #AnyoneWhoFollowsWillGetAReply#