Tencent Profit Beats, but AI Spending Hits Shares
On.cc · 3 SOURCESabout 1 hour ago2 MIN
Summary
Tencent’s second-quarter results beat market expectations on both revenue and adjusted earnings, but investors focused on a surge in AI-related capital expenditure and the resulting negative free cash flow. The stock fell 3.81% by midday in Hong Kong after the earnings release, even as brokers said Tencent’s core businesses remained resilient. Morgan Stanley, Goldman Sachs and UBS all lowered target prices or earnings forecasts to reflect heavier AI investment, while maintaining positive ratings on the stock. The debate has shifted from near-term profit pressure to whether Tencent can turn its expanding in-house AI ecosystem into meaningful long-term returns.
Key Points
- Tencent reported second-quarter revenue of Rmb204.8 billion, up 11% year on year, and adjusted net profit of Rmb68.4 billion, up 9%, both above expectations
- Capital expenditure jumped 1.76 times year on year, with reports saying quarterly capex exceeded Rmb50 billion as Tencent stepped up computing-power purchases for AI development.
- The heavier spending pushed free cash flow into negative territory, prompting Tencent shares to drop 3.81% to HK$444 by midday trading in Hong Kong.
- Goldman said losses from new AI products, including the Hunyuan model, WorkBuddy and XiaoWei, widened to about Rmb10.5 billion in the second quarter from Rmb8.8 billion in the first
- Morgan Stanley cut its target price to HK$550, Goldman lowered its 12-month target to HK$670, and UBS trimmed its target to HK$770 while keeping positive ratings
Why It Matters
For Hong Kong investors, Tencent’s results underline a trade-off now shaping major China tech stocks: stronger operating performance on one side, and a much larger AI investment bill on the other. The stock’s reaction also shows that the market wants clearer evidence that Tencent’s spending on models, enterprise tools and WeChat-linked AI products can translate into revenue rather than just higher costs