A report from BOC International has reaffirmed a positive outlook on Tencent Holdings Limited (00700), maintaining a "Buy" rating and an unchanged target price of 655 Hong Kong dollars.

The brokerage firm highlights that Tencent's core business focus remains on gaming, a sector where it is expected to show sustained resilience over the coming quarters. This strength is attributed to its portfolio of evergreen games and a diverse game platform.

The report notes that Tencent has been intensifying its investment in artificial intelligence in recent years. While the market is closely watching the profitability of these AI ventures, BOC International forecasts that the company's capital expenditure for 2026 will range between 160 billion and 180 billion renminbi, depending on supply chain dynamics. It is widely believed that Tencent will continue a steady investment pace to maintain its business flexibility.

The firm suggests that it is currently premature to focus on capital expenditure levels beyond 2027. After that year, Tencent is expected to adopt a more moderate strategy and a more measured capital expenditure plan for growth. This approach could change, however, if consumer-facing AI applications demonstrate an ability to generate significant revenue and a robust profit model, or if the company's core social ecosystem and main business operations are challenged by high-end AI competitors.

BOC International believes that Tencent is currently prioritizing its computing resources for the development of its Hunyuan large model. The "Xiaowei" project, due to potential computing power consumption, compliance considerations, and a lack of effective commercialization methods, is not a near-term priority.