Fu Peng: AI Narrative Shifts From Rewarding Cash-Burning Expansion to Punishing Capital Spending

Odaily News: Fu Peng stated that the market is currently in a vacuum period for proving or disproving AI's complete viable business loop. The market's euphoria has cooled, switching from a logic of "rewarding the capital expenditure arms race" to "punishing the capital expenditure arms race."

In this environment, the previous punishment of Google for negative free cash flow and the shift to Apple in US stocks is a typical switch, and the same thing is now happening among Chinese internet giants. Alibaba's capital expenditure (CapEx) surged significantly this quarter, leading to consecutive net outflows of FCF (free cash flow). When massive AI computing power and infrastructure investment cannot form a profit loop of comparable scale in the short term, high-intensity capital expenditure consumes offshore cash. Investors had already begun to seriously doubt the marginal return on capital, and the global market is half-skeptical about the complete AI loop narrative. On top of that, the announcement of a massive placement/convertible bond financing amounts to diluting existing shareholders' equity.

Michael Burry, the big short, reduced or even liquidated his Alibaba position and instead heavily bought or increased his JD.com position. This is actually the same logic as investors switching from Google to Apple: the market now treats as safe those who maintain relatively restrained balance sheet expansion, who do not consume FCF to chase the AI arms race or resort to further financing, and who have high certainty in executing buyback plans.