Daiwa has released a research report indicating expectations for TENCENT (00700) to raise its forecast for AI capital expenditures, which is anticipated to pressure its medium-term earnings. Concurrently, while growth in the gaming segment is moderating from a high base, the momentum for market share gains remains intact. The firm has consequently reduced its earnings per share forecasts for the company for 2026 through 2028 by 1% to 6% to reflect these impacts.

Daiwa maintains a "Buy" rating on Tencent but has lowered its target price from HK$700 to HK$670. The brokerage has significantly increased its forecast for Tencent's AI capital expenditure in 2026 from the previous RMB 108 billion to approximately RMB 181 billion. This revision accounts for the company's stronger commitment to AI investment and improvements in chip supply.

Although higher depreciation charges are expected to weigh on near-to-medium-term profitability, this increased investment is also projected to accelerate the expansion of the cloud business and the monetization of AI demand, with potential benefits likely to materialize from the second half of 2026 onward.

Regarding the gaming business, Daiwa has revised down its growth forecast for Tencent's gaming revenue in the second quarter of 2026 from 14% to 10%. Within this, the forecast for domestic game growth has been adjusted down to 12%, while the forecast for international game growth has been lowered to 9%. This adjustment is primarily attributed to more moderate revenue recognition for multiple games during the Lunar New Year period and the challenge of a higher comparative base.