Nomura: Lowers Tencent's target price to HKD 695, viewing the surge in AI spending as a strategic advantage.

Nomura published a report stating that Tencent's surge in artificial intelligence spending should be seen as a strategic advantage, maintaining a "Buy" rating, with the target price lowered from HKD 727 to HKD 695. Tencent's results for the second quarter largely met expectations; according to the bank's calculations, AI-related investments during the period may exceed RMB 100 billion, including RMB 53 billion in capital expenditures and an additional RMB 51 billion in advance payments to secure computing resources. The bank believes this substantial investment in artificial intelligence demonstrates Tencent's commitment to building indispensable infrastructure that enables the company to effectively compete with peers like ByteDance and Alibaba. In the context of a supply shortage in the Chinese industry, Tencent's significant increase in AI spending this year indicates its capability to successfully procure the necessary GPU resources. As management pointed out during the earnings conference call on August 12, the recently secured computing resources can easily be leased at a premium through Tencent Cloud, providing a built-in safety net.