Daiwa: Downgrades Tencent's target price to HKD 670, adjusts AI capital expenditure and profit forecasts

Zhitong
2026.07.13 08:29

Daiwa released a research report stating that it expects Tencent Holdings to raise its expectations for AI capital expenditures, which will put pressure on its mid-term profits. At the same time, growth in the gaming business has slowed under a high base, but its market share growth momentum remains intact. The firm has lowered its earnings per share forecast for the company from 2026 to 2028 by 1% to 6% to reflect the related impact. Daiwa maintains a "Buy" rating on Tencent, with the target price adjusted from HKD 700 to HKD 670. Daiwa has significantly raised its forecast for Tencent's AI capital expenditures in 2026 from the original RMB 108 billion to approximately RMB 181 billion, reflecting the company's stronger commitment to AI investment and improvements in chip supply. Although higher depreciation will drag down its near to mid-term profit performance, this is also expected to drive faster expansion of cloud business and monetization of AI demand, which may start to be released from the second half of 2026. In terms of the gaming business, the firm has lowered Tencent's gaming growth forecast for the second quarter of 2026 from the original 14% to 10%, with the domestic gaming growth forecast lowered to 12% and the international gaming growth forecast lowered to 9%, mainly due to the smoother revenue recognition of several games during the Lunar New Year period and facing a higher comparative base

According to the Zhitong Finance APP, Daiwa released a research report stating that it expects Tencent Holdings (00700) to raise its expectations for AI capital expenditures, which will put pressure on its mid-term profits. At the same time, growth in the gaming business has slowed under a high base, but its market share growth momentum remains intact. The firm has lowered its earnings per share forecast for the company from 2026 to 2028 by 1% to 6% to reflect the related impact. Daiwa maintains a "Buy" rating on Tencent, with the target price adjusted from HKD 700 to HKD 670.

Daiwa has significantly raised its forecast for Tencent's AI capital expenditures in 2026 from the original RMB 108 billion to approximately RMB 181 billion, reflecting the company's stronger commitment to AI investment and improvements in chip supply. Although higher depreciation will drag down its near to mid-term profit performance, this is also expected to drive faster expansion of cloud services and monetization of AI demand, which is anticipated to be released starting in the second half of 2026.

In terms of the gaming business, the firm has lowered its forecast for Tencent's gaming growth in the second quarter of 2026 from the original 14% to 10%, with the domestic gaming growth forecast lowered to 12% and the international gaming growth forecast lowered to 9%. This is mainly attributed to the smoother revenue recognition of several games during the Lunar New Year period and facing a higher comparative base

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