Tencent reports strong earnings, plans to increase investments in AI, fair value estimate raised by 1%.

From Morningstar: 2025-03-20 07:31:00

Tencent reported strong fourth-quarter earnings with an 11% increase in revenue and a 21% growth in adjusted operating profit. The company provided 2025 capital expenditure guidance of about CNY 90 billion (USD 12.5 billion) and reduced share buybacks by 30% compared to 2024. This shift towards investing for future growth is significant.

Tencent’s capital expenditure guidance for 2025 is more focused on return on investment compared to competitors like Alibaba. The company plans to increase investments in artificial intelligence, funded by a decrease in share buybacks. Management remains flexible in adjusting plans based on market demand, emphasizing the importance of adapting to changing conditions.

Despite the increase in capital expenditure, Tencent’s fair value estimate has been raised by 1% to HKD 710 per share. The company’s shares are still viewed as undervalued, trading at a 25% discount to the valuation. The 2025 core earnings multiple of 20 times is considered more accurate than the headline P/E ratio, excluding equity investment gains on profit.

Tencent highlighted the growth of its top five domestic games during the 2025 Spring Festival, indicating increased popularity and future earnings potential. The company’s emphasis on investing in AI and adapting to market demand suggests a strategy focused on long-term growth and sustainability.



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