Tencent's shares in Hong Kong declined by more than 3.8%, hitting a two-week intraday low. Morgan Stanley noted that Tencent's solid core fundamentals are being overshadowed by heavy upfront AI investments, predicting a flat earnings trajectory from the second half of this year through 2027. The firm has cut its price target for Tencent by over 15% to 550 Hong Kong dollars while maintaining an overweight rating.

Morgan Stanley analysts, including Gary Yu, stated in their report that they have raised their capital expenditure forecasts for Tencent for 2026-2027 to 200 billion yuan each. They have also reduced their non-IFRS operating profit projections for this year and next by 1.8% and 12.3%, respectively.

The analysts said that while the increased investment in AI could pressure short-term profitability, Tencent has a solid foundation for creating long-term value.

If needed, excess AI infrastructure capacity can be monetized through Tencent Cloud, providing additional downside protection.

Tencent's core business is among the strongest in China's internet industry, bolstered by a durable competitive moat and increasing AI integration across WeChat, gaming, and advertising sectors.

In contrast, Citigroup analyst Alicia Yap and her team raised their price target for Tencent to 765 Hong Kong dollars, reiterating a buy rating. They cited Tencent's AI initiatives showing clear results while its core business maintains resilience.

Citigroup has increased its capital expenditure forecasts for Tencent this year and next to 200.7 billion yuan and 235 billion yuan, respectively.