Michael Burry’s biggest claim to fame might be his handling of the 2008 financial crisis, illustrated in ‘The Big Short’, but the savvy investor is still quite active in the financial markets.
After an unsuccessful attempt to short the semiconductor industry, Burry made yet another controversial, heterodox decision. He ditched U.S. equities — and focused on the (at the time) relatively undervalued Chinese market.
This time around, Michael Burry seems to have gotten it right yet again. While the S&P 500 has shed roughly 4.37% in value since the start of the year, Chinese indices have been in the green since January 1.
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Through his hedge fund, Scion Asset Management, the legendary short trader maintains a highly concentrated portfolio. His biggest holding, which accounts for 16% of the portfolio, is e-commerce and tech giant Alibaba, and his investment in the business dates back to the last quarter of 2023.
At press time on April 1, Alibaba stock (NYSE: BABA) was trading at $132.23, having marked a 55.95% surge on the year-to-date (YTD) chart.
It seems that Burry was ahead of the curve yet again. Since BABA shares surged past 12-month price targets, Wall Street analysts have been reexamining their outlook — and have begun projecting a much more significant upside as of late.
Analysts raise upside projections for Baba stock
The chief catalyst that drove Wall Street’s renewed bullishness is the company’s Q3 2024 earnings call, held on February 20.
Although the quarterly report included a double beat, the main cause for optimism was the fact that chief executive officer (CEO) Eddie Wu announced that the e-commerce giant will aggressively ramp up artificial intelligence (AI) spending.
Analyst coverage following the earnings call has been unanimously positive — with each update including a price target upgrade.
Bernstein’s Robin Zhu upgraded the stock to a ‘Buy’ from a ‘Hold’, and hiked his price target from $104 to $165 following the earnings call.
In a note shared with investors, Zhu cited more gainful capital allocation of spending on AI infrastructure as opposed to “chasing Temu” in global markets, a more favorable industry structure for AI compared to legacy cloud, and potential spill-over effects from China’s AI Capex boom.
Can AI propel Michael Burry’s largest holding back to its all-time high?
An even more bullish outlook was given by Mizuho analyst James Lee, who highlighted steady capital inflows, the release of the company’s newest AI Model, QwQ-32B, and strength in non-core businesses. Lee increased his price target from $140 to $170, thereby hiking his upside estimate by 20% and maintaining an ‘Outperform’ rating.
Despite the impressive surge that Alibaba stock has experienced since the start of the year, it is still trading at a modest forward price-to-earnings (PE) of 13.41.
Moreover, BABA shares are still significantly down compared to their all-time high (ATH) of $306.16. To reach that level again, Alibaba stock would have to surge by 131.53% — and although there is no guarantee that will happen, at present, conditions appear to be favorable.
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