Morgan Stanley lowers target price for Tencent to HK$650, saying short-term AI investments are expected to drag down profit margins.

Tencent Holdings' Hong Kong stock once fell by more than 5%, marking the largest intraday decline in over six weeks. Morgan Stanley stated that Tencent is increasing its investments in basic models, Yuandao, and other new artificial intelligence products and GPUs. These early investments will put pressure on the company's profit margins in the short term; the price target for the company has been lowered from HK$735 to HK$650. Analysts at Morgan Stanley, including Gary Yu, pointed out in their report that Tencent's operating profit under non-international financial reporting standards for 2026 and 2027 has been revised downwards by 6%-7% to reflect higher AI-related investments. It is expected that Tencent's revenue in 2026 will increase by 10.8%, and the operating profit under non-international financial reporting standards will increase by 5%. Tencent invested 18 billion yuan in new AI products in 2025, and it is expected to more than double in 2026. In the long run, Tencent's investments in the field of AI are expected to unleash new growth opportunities. They reiterated their overweight rating on the stock.