Tencent announced a significant increase in AI investment, raising concerns about short-term profitability. However, Bank of America (BofA) believes this is a necessary step in Tencent's AI re-evaluation and that patience will be rewarded.
At its latest earnings call, Tencent announced plans to at least double its investment in Hunyuan and new AI products by 2026. This shift from reducing share buybacks to increasing AI investment quickly caused market fluctuations, with Tencent's stock falling in intraday trading and accumulating a drop of over 8% in the past five days.
However, according to Fentrade, BofA reiterated its &#34;Buy&#34; rating on Tencent in its latest research report, emphasizing that &#34;patience is a virtue.&#34;
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<h2>Clear Path for AI Re-evaluation: Models, Cloud, Agents</h2>
BofA pointed out that Tencent's path for AI re-evaluation is very clear. In the next six months, the launch of Hunyuan 3.0 (HY3.0) and upgrades to more large language models (LLMs) will be key milestones. Subsequently, in 6 to 12 months, accelerated growth in capital expenditure and cloud revenue will further validate the effectiveness of its AI strategy. And in 9 to 18 months, the launch of Weixin Agent will be a major focus.
BofA believes that the next stage of AI competition is shifting from &#34;who owns/develops the best models&#34; to &#34;who can design the best AI-driven products.&#34; In this transition, the key to determining the success of AI agents will no longer be solely the complexity of the underlying models, but rather the breadth of services, depth of content, and effective utilization of user context. BofA emphasized: &#34;We believe Tencent is in a particularly advantageous position in this transformation.&#34;
<h2>Surge in AI Investment: Short-Term Profits Under Pressure, Long-Term Prospects Promising</h2>
Tencent's investment in AI is increasing significantly. According to company guidance, AI investment in the income statement will increase from 18 billion yuan in 2025 to over 36 billion yuan in 2026. BofA noted that this does not include capital expenditures or external cloud-related expenses.
This increase in investment is expected to lower non-GAAP operating profit margins by a low single-digit percentage in 2026, but BofA considers this &#34;manageable.&#34;
To reflect the increased AI investment, BofA lowered its non-IFRS net profit forecasts for Tencent in 2026 and 2027 by 4% and 3%, respectively.
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<h2>Accelerated Capex: Computing Power Resources Allocated to Core AI Products</h2>
In terms of capital expenditure, BofA expects Tencent's future growth to accelerate, with growth in 2026 potentially concentrated in the second half of the year. Capex is projected to increase from 79.2 billion yuan in 2025 to 95 billion yuan in 2026, and further to 120 billion yuan in 2027. Despite this, Tencent's capex intensity in 2026-2027 will remain well below 50% of its operating cash flow.
Furthermore, the report mentioned that the recent reduction in the iOS revenue sharing ratio in China (with potential for further reductions) should provide some buffer for AI expenses, leading to a low single-digit profit margin benefit.
When comparing with its closest peer, Alibaba, the report noted that Tencent's AI investment is very similar to Alibaba's &#34;all other losses,&#34; which has an annualized run rate of 40 billion yuan. However, BofA emphasized that Tencent's operating profit margin and operating cash flow in 2025 are significantly higher than Alibaba's.
<img src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/59a9231a-7838-44a7-8539-cc8002eaa3ff.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="Image" original-src="https://imageproxy.pbkrs.com/https://wpimg-wscn.awtmt.com/59a9231a-7838-44a7-8539-cc8002eaa3ff.png"/>

Tencent's latest quarterly report is out!Tencent Holdings' net profit for the first quarter is RMB 47.82 billion, estimated at RMB 51.69 billion; the operating profit for the first quarter is RMB 57.57 billion, estimated at RMB 59.2 billion.How to interpret this financial report?

Tencent's latest quarterly report is out!Tencent Holdings' net profit for the first quarter is RMB 47.82 billion, estimated at RMB 51.69 billion; the operating profit for the first quarter is RMB 57.57 billion, estimated at RMB 59.2 billion.How to interpret this financial report?

Tencent Financial Report, Understand it at a Glance!

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Tencent announced that its AI investment will double to over 36 billion yuan in 2026, leading to short-term profit pressure and an 8% stock drop in five days. BofA stated that "patience is a virtue" and believes Tencent's AI re-evaluation path is clear: key milestones in the next 6-18 months include the launch of Hunyuan 3.0, accelerated cloud revenue, and the introduction of Weixin Agent. The firm believes Tencent's capital expenditure intensity in 2026-2027 will remain well below 50% of its operating cash flow

- Tencent announced plans to significantly increase its AI investments in 2026, raising concerns about short-term profits, which have led to an 8% drop in its stock price over five days.  
- Despite this, Bank of America Merrill Lynch reaffirmed its "buy" rating, noting that patience will be rewarded as the path for Tencent's AI reevaluation becomes clear with key milestones expected in the next 18 months.  
- The projected investment in AI is set to double, impacting non-GAAP operating profit margins, but Bank of America believes the financial adjustments are manageable, predicting increased capital expenditures from 792 billion CNY in 2025 to 950 billion CNY in 2026.

Market "Votes with its Feet" on AI Investment? BofA: Tencent is Stable, Patience is a Virtue