DSTENCT@EC2611A(28935.HK)

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Tencent (Trans): H2 investment to ramp up; cloud to accelerate, stronger LLM to launch

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Tencent: No Longer Resting on Laurels; AI Is the Way Forward

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Tencent Shareholders Approve All Resolutions at 2026 AGM

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Tencent 1Q26 First Take: Q1 delivered a mixed print vs. expectations. There is plenty to unpack. At this stage, the market’s top questions center on AI: the roadmap, the scale of planned investment, how it could weigh on profit and buybacks, and which businesses will fund it. We offer quick takes alongside the print; expect more color on the call. 1) AI spend is set to rise: Q1 capex recognized was RMB 31.9bn (+16% YoY), which looks modest, but cash capex reached RMB 37.0bn, again reflecting prepayments for capacity.With compute scarce—especially at the high end—Tencent is front-loading purchases as it iterates base LLMs, leading cash outlays to exceed accounting recognition for four consecutive quarters. Supply remains tight. Capex will rise meaningfully this year. Annualizing Q1 implies north of RMB 120bn. Mgmt often includes compute leasing and foundational development spend booked in Opex when sizing total AI investment. Stripping out personnel from R&D, foundational tech spend rose 61% YoY in Q1, an acceleration.It accounted for 28% of total R&D (vs. 20% a year ago), outpacing total depreciation, which was still growing just above 20% YoY. This underscores a faster pivot toward infrastructure. 2) Profit and buybacks under pressure: The drag has already started. In Q1, ad GPM reflected some AI-related depreciation, down 50bps YoY.By contrast, value-added services GPM improved on a higher mix of self-developed titles and reduced iOS rev-share. Efficiency gains helped offset near-term AI spend, with SG&A down and total headcount lower QoQ. Core operating profit was RMB 66.1bn (GP minus operating expenses), up 12% YoY. While margin improved YoY, profit will likely be under pressure this year, and the Street now models low single-digit growth with a slight margin decline. The hit to buybacks is larger. Q1 repurchases totaled HK$7.6bn, more than halved YoY.Mgmt already flagged an investment-first stance last quarter. We estimate full-year buybacks likely below HK$50bn. 3) Growth drivers: Turning to revenue. Q1 grew 9% YoY, with ads and games carrying the load. (1) Ads rose 20%, beating expectations despite a weak macro, driven by better performance in Channels and search.AI-related, gaming, and e-com categories were key growth areas, supported by strong AI sector demand, the Q1 seasonal uptick for games, and incremental budgets from WeChat Shops. (2) Games rose 8% YoY, with domestic +6% and overseas +13% (+14% cc), overall below expectations.Evergreen titles held up, and new contributions from '三角洲' and '鸣潮' helped. The late Lunar New Year and the late-quarter launch of Tencent’s hit mobile title '洛克王国' deferred some grossing into Q2. Deferred revenue reached RMB 141.3bn at end-Q1, up 15% YoY and clearly accelerating vs. Q4.However, the April stumble of '王者荣耀世界' weighs on near-term growth expectations. There is still room to improve with the Honor of Kings IP as a backstop. (3) FinTech & Biz Services were broadly in line. FinTech grew single digits, while Biz Services rose ~20% on AI cloud demand and higher tech commissions from WeChat Shops。$TENCENT(00700.HK) $Tencent(TCEHY.US)

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China tech giant Tencent sees Q1 profit jump after AI bets

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China's Tencent sees boost from gaming, AI demand even as revenue comes in weaker than expected

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New AI collaboration features ignite MiniMax; Xiaomi 17 Max big-screen flagship debuts | Daily News Recap

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SE (Trans): Shopee GMV to grow at least 25% in 2026; Garena bookings to sustain strong growth

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SE: Southeast Asia's mini Tencent roars back!

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TME (Trans): Intense Competition; Deepening WeChat Channels Collaboration in 2024

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