Thursday, TENCENT fell nearly 5% at the close, briefly pushing its market capitalization below HKD 4 trillion.

TENCENT reported Q2 revenue of 204.79 billion RMB, up 11% year-over-year and slightly above consensus. However, capital expenditure surged 176% to 527.8 billion RMB — exceeding the market estimate of 321.4 billion by over 60% — driven by massive AI computing power procurement. Free cash flow turned negative to -13.8 billion RMB, while net profit of 56.02 billion RMB missed the 58.36 billion consensus. Non-IFRS operating profit rose 9% to 75.64 billion RMB, but excluding new AI product impacts, growth was 19%.

Morgan Stanley noted that solid core fundamentals were offset by front-loaded AI investment, cutting its target price over 15% to 550 HKD while maintaining an overweight rating. In contrast, Citi raised its target to 765 HKD. Management characterized the spending as a one-time infrastructure buildout rather than linear annual increases, emphasizing that algorithm capacity could be rented out at 30%+ margins above procurement cost if needed.