Morgan Stanley has issued a research report reiterating its "Overweight" rating on TENCENT (00700), keeping its target price unchanged at HK$650.

The firm anticipates that Tencent's second-quarter revenue will increase by 9.4% year-over-year, a slight acceleration from the 9.1% growth seen in the first quarter, driven by resilient core business operations and favorable progress in artificial intelligence initiatives.

Analysts note that while macroeconomic headwinds persist, the fading of negative factors following the Lunar New Year holiday period is expected to provide support for growth momentum.

The report highlights that increased depreciation from AI investments is likely to temporarily weigh on the pace of operating profit growth in the near term. For the second quarter, non-GAAP operating profit is projected to rise by 7% year-over-year, a rate slower than the top-line growth.

However, excluding the impact of AI-related expenditures, core operating profit is forecast to demonstrate robust expansion, with an estimated year-over-year increase of 13.5%.