Morgan Stanley: Tencent Holdings — 4Q25 In Line; Reduced Buyback to Fund AI Investments
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Tencent's 4Q25 results aligned with market expectations, featuring 13% year-over-year revenue growth and a 17% increase in non-IFRS operating profit. Notably, the company plans to reduce its share buyback program in 2026 from the 2025 level of RMB 80 billion to prioritize funding new AI product investments, which are expected to more than double compared to 2025.
Segment performance remained robust, with gaming revenue surging 21%, driven by a 15.1% increase in domestic games and a 31.9% jump in international titles. Advertising revenue grew 18%, and FinTech and Business Services (FBS) expanded by 8%. Gross margin improved by 1.3 percentage points to 56.4%.
Capital expenditure increased significantly to RMB 19.6 billion in 4Q25, bringing the full-year 2025 total to RMB 79.2 billion. GPU capacity is slated for gradual expansion throughout 2026 and 2027. Tencent's Hunyuan large language model 3.0 has entered internal testing and will be externally available starting in April. WeChat is actively developing next-generation AI agent services to connect users across its mini-program, social, and payment ecosystems. Morgan Stanley maintains an Overweight rating on Tencent (0700.HK) with a target price of HKD 735, implying 34% upside based on a sum-of-the-parts valuation.