【700 Analysis】Tencent Fell 6% After Earnings　Analysts: Market "Doesn't Like" Reduced Buybacks, Time Needed to Judge if AI Spending is Justified

Tencent (00700) Performance roughly in line with expectations, but this year’s AI new product launches will double, and share buybacks will decrease. The stock price fell over 6% on Thursday morning. A Morgan Stanley report pointed out that Tencent is increasing AI investments, which will put short-term pressure on profit margins, but in the long run, it should create new opportunities. The target price was lowered from HKD 735 to HKD 650, with a reaffirmed “Overweight” rating. Goldman Sachs also noted that Tencent is clearly shifting into an investment phase dominated by new AI products, lowering the target price from HKD 752 to HKD 700.

Independent analyst Wong Yiu Chung said that Tencent’s strong performance, with gaming and other business revenues significantly improving after 2024, “really delivered good results.” The market’s initial negative reaction is not due to earnings, “because they need to spend money, so buybacks are reduced, and the market doesn’t like that.”

The AI agent “Lobster” OpenClaw has sparked a craze, and Tencent is taking advantage of the trend to advance AI applications. Wong Yiu Chung believes that AI development has entered a new stage, and “Lobster” could become the starting point for a new generation of AI applications for ordinary users, potentially driving many companies to break through. Tencent and others are actively integrating AI services into their ecosystems to promote commercialization models. Long-term investors can pay attention to large companies with breakthrough capabilities, which may become ultimate winners.

Wong Yiu Chung said that Tencent has already demonstrated some results of AI commercialization, but investors still need time to see more concrete performance reports from the company to judge whether the spending is reasonable. Once the market recognizes the company’s successful commercialization, the stock price could explode. “The surge could be very dramatic because right now, no one believes in this. Going from disbelief to belief can make a big difference. But for now, we might need to be patient and wait.”

He predicts that Tencent’s stock price will hover around HKD 500 in the short term. Based on past two or three years’ experience, the forecasted P/E ratio at Tencent’s low points is about 14 to 15 times, which can be considered a medium-term buying reference. There is usually a low period once a year, and currently, the forecasted P/E ratio is in a low range. Although the stock price may not rebound quickly in the short term, these next one or two months could be a good opportunity for medium-term accumulation.

Financial Hot Talk

Is the “Lobster” craze over, and has the “removal” trend of AI agents ended?