Excerpt from China Galaxy International Securities (Hong Kong) Co., Limited report.

Report Summary

• Tencent’s Q4 2025 results were in line with expectations, with revenue growing 12.7% year-over-year to Rmb194.4bn and non-IFRS net profit up 17% to Rmb64.7bn.
• The company plans to more than double its AI investments in FY26, which will pressure short-term profit margins, with FY26 profitability expected to be lower as a result of significant AI-related costs.
• Management guides that AI spending is more like upfront capex and expects medium-term profitability improvements as the new AI business scales, leveraging Tencent’s ecosystem including WeChat, mini-programs, and cloud.
• Tencent’s gaming business outperformed the industry, with new and existing titles driving strong growth, while advertising and cloud/fintech segments also saw robust gains driven by AI and ecosystem synergies.
• The broker reiterates an Add rating, but lowers the DCF-based target price to HK\$702 due to the margin impact of AI investments, forecasting continued double-digit revenue growth but moderating earnings growth in FY26 and FY27.
• Key risks include sustained margin pressure from AI spending, slower macro-driven revenue growth, and potential lag in AI technology versus peers.

Above is an excerpt from a report by China Galaxy International Securities (Hong Kong) Co., Limited. Clients of China Galaxy International Securities (Hong Kong) Co., Limited can be the first to access the full report from the China Galaxy International website: https://www.chinastock.com.hk