UBS reiterates Tencent as the industry favorite, optimistic about the potential of AI intelligence

UBS published a research report stating that Tencent (00700.HK) has fallen approximately 13% year-to-date, underperforming the Hang Seng Tech Index and the Hang Seng Index during the same period. This is believed to be due to investor concerns over the potential increase in value-added tax for tech companies (which has been denied by state media), heightened regulatory scrutiny, potential industry disruption brought by AI, and worries that Tencent may fall behind in AI competition.

However, UBS also noted that most of the downside risks have already been reflected in the stock price. They pointed out that Tencent's recent developments in AI and gaming are positive, suggesting that investors may be overlooking these factors. They reiterated Tencent as a top pick in the industry, maintaining a "Buy" rating with a target price of HKD 780.

Regarding AI competition, the market is concerned about Tencent's lagging performance in downloads and weekly active users for its Yuanbao during the Lunar New Year period. However, UBS indicated that the key to success in the AI field for enterprises lies in their ability to integrate high-quality models, a strong user base, and extensive data. With WeChat boasting 1.4 billion users across diverse application scenarios including social, business, and content, along with an active mini-program ecosystem, UBS believes Tencent's unique advantages are difficult to replicate and remains optimistic about Tencent's strong potential in the AI domain