Alibaba’s (BABA) Short-Term Capex Drag Creates a 30% Valuation Discount
📉 Alibaba shares declined 21.3% in the period reviewed, trading at $109.23 per share on September 14, 2026.
💸 Capital expenditures have consumed free cash flow to the point of becoming negative, creating a short-term drag on liquidity.
📊 The stock trades at a circa 30% discount to Alluvium Asset Management's internal valuation model.
🤖 Results were primarily driven by artificial intelligence investments and management confidence in further spending.
🏦 Alluvium Asset Management maintains a 2.6% position in Alibaba within its Conventum – Alluvium Global Fund.
📉 Hedge fund sentiment shows 97 portfolios holding the stock, down from 102 in the previous quarter.
📈 The maintainable earnings yield has increased to 7.7% due to the falling share price.
Bullish Signals
- Alibaba is trading at a circa 30% discount to Alluvium Asset Management's internal valuation model, presenting a potential value opportunity.
- The maintainable earnings yield has increased to 7.7% as a consequence of the significant decline in share price.
Risk Factors
- The stock has declined 21.3% recently and lost 32.08% over the past 52 weeks, indicating significant recent bearish momentum.
Full Analysis
Alluvium Asset Management's Conventum – Alluvium Global Fund highlighted Alibaba Group Holding Limited (NYSE:BABA) in its second-quarter 2026 investor letter, noting the stock's significant decline and specific operational dynamics. The fund manager observed that while Alibaba's results were driven by artificial intelligence investments and management confidence, a major concern was the consumption of free cash flow by capital expenditures, which had turned negative.
Despite this drag on liquidity, the fund viewed the situation as manageable given the broader market context and the company's strategic positioning. Consequently, the maintainable earnings yield for Alibaba increased to 7.7% based on the fund's calculations, reflecting a substantial valuation discount of approximately 30% relative to the firm's internal valuation models.
The fund currently holds a 2.6% position in Alibaba, ranking it 30th among its top holdings and noting that 97 hedge fund portfolios maintained positions at the end of the quarter. While acknowledging the company's potential, the asset manager expressed a preference for other AI stocks offering greater upside with lower downside risk, though they remain unconcerned by short-term share price volatility.
