UBS reiterates Tencent as a top pick and key recommendation, with potential for artificial intelligence expected to be unleashed

UBS published a research report stating that Tencent (00700.HK) has recently undergone an organizational restructuring in its artificial intelligence department and accelerated talent acquisition, demonstrating its strong commitment to artificial intelligence. The new appointment of AI head Yao Shunyu (formerly of OpenAI) further enhances the group's ability to attract top AI talent.

The bank noted that Tencent participated in its 2026 UBS Greater China Conference (GCC), where management recognized the enormous opportunities presented by AI agents. Compared to manual execution, the key to the success of ToC AI applications lies in a comprehensive and consistent understanding of users, thereby improving the efficiency of AI agents in executing tasks on behalf of users. Tencent WeChat, with its vast user base, rich application scenarios, and thriving mini-program ecosystem, holds a unique advantage.

UBS expects Tencent's revenue in the fourth quarter of last year to grow by 13% year-on-year, with adjusted operating profit increasing by 14% to RMB 68 billion. By business segment, domestic game revenue is expected to grow by 13% year-on-year, while international games are expected to grow by 24%. Marketing services are expected to increase by 18%. Financial technology and enterprise services are expected to remain robust, with an annual growth of 11%. The adjusted operating profit margin is expected to increase by 0.3 percentage points year-on-year to 34.8%, and the improvement in gross margin will partially alleviate the impact of increased AI investments.

UBS reaffirms Tencent as its preferred stock and key recommendation; rating "Buy," target price HKD 780