Citi | Tencent Holdings (0700.HK): Accelerated AI Investment Cements a Clear Roadmap; AI Monetization Inflection Point Nears
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Key Views
2Q26 operating profit excluding AI investments would have risen 19% YoY to RMB86.0bn (42% margin) versus 36.9% reported; FY26 operating profit could grow 15.3% to RMB343.6bn excluding RMB46.8bn of AI spend. Domestic games rose 17% to RMB47.3bn with record DAUs for Delta Force and Valorant PC; enterprise services grew just over 20% on AI demand. Citi trims 2026-28E earnings by 0.2%/3.2%/4.5% (revenue +0.1%/+0.3%/+1.0%) on higher capex, while FY26 adjusted net profit rises 2.9% to RMB267.0bn (32.5% margin, diluted EPS RMB29.18).
Outlook
Hy4 launches this year targeting SOTA-level intelligence; surplus compute will be monetized via cloud services, with profitable GPU leasing as a fallback.
Recommended Securities
Tencent Holdings (0700.HK): Buy, TP HK$765.00; market cap ~HK$4.19trn.