Tencent shares declined on Tuesday after Mizuho lowered its price target on the technology company, citing uncertainty over whether rising artificial intelligence investment will generate stronger returns.
The shares fell 1.8% to HK$438.40, underperforming the Hang Seng Index, which declined 0.5%.
Mizuho Lowers Tencent Price Target
Mizuho maintained its “Neutral” rating on Tencent but reduced its price target to HK$560 from HK$610. The brokerage said Tencent’s core businesses remain resilient, but investors are looking for clearer evidence that the company’s increasing AI spending will translate into meaningful returns.
Tencent’s revenue increased 11% year-over-year, slightly exceeding Bloomberg consensus estimates, supported mainly by domestic gaming and advertising. However, operating income came in slightly below expectations as the company increased investment in artificial intelligence, although operating margins still expanded by 30 basis points year-over-year.
AI Spending Raises Cash Flow Concerns
The main concern for investors is Tencent’s cash generation. Free cash flow turned negative during the quarter as capital expenditure reached a record RMB52.8 billion, reflecting the cost of expanding AI infrastructure and capabilities.
Mizuho expects Tencent’s AI investment cycle to continue, with investors watching products including its next-generation flagship large language model, text-to-video model, CodeBuddy for enterprise users and Xiaowei’s integration into WeChat.
Advertising and Cloud Businesses Remain Strong
Mizuho identified advertising as a key area of strength, with revenue increasing 22% year-over-year. The brokerage also highlighted Tencent’s cloud business, where growth accelerated into the low-20% range from the high-teens in the previous quarter.
The brokerage said Tencent’s internal AI models continue to progress, with HY3 ranking among the top three globally on OpenRouter by token usage.
However, Mizuho noted that Tencent currently does not lead in two AI application categories showing the clearest evidence of global subscription monetization: coding assistants and AI-native video.
International Gaming Faces Pressure
Mizuho also highlighted challenges in Tencent’s international gaming business, which recorded its first year-over-year decline since early 2022.
The brokerage kept its fiscal 2026 and 2027 estimates largely unchanged but reduced valuation assumptions due to recent weakness across the broader AI sector.
