Tencent Stock Plummets After Earnings, Market Value Drops Below 5 Trillion Hong Kong Dollars! AI Investment of 18 Billion Yuan to Double, Entering "Cash-Burning Stage," Market Reacts "Unhappily"

On March 19, Tencent Holdings (00700.HK) opened sharply lower, dropping over 6% in the morning session. The decline continued in the afternoon, and by the close, the stock fell 6.8% to HKD 513, with a total market capitalization of HKD 4.68 trillion. Tencent Music (01698.HK) also declined significantly, closing down over 8% at HKD 41.1.

The previous day, Tencent announced its full-year 2025 results, with revenue and profit both increasing. Despite strong performance, the stock price plummeted, with Tencent’s investment in AI seen as a “double-edged sword.”

Industry insiders believe Tencent’s results met expectations, but investors are concerned that increased AI investments may reduce share buybacks. In the short term, the stock may test the important support level of HKD 500, while its long-term growth potential remains uncertain.

Image source: Visual China

Increased AI Investment May Lead to Reduced Share Buybacks

Morgan Stanley and Goldman Sachs have lowered their forecasts.

According to the earnings report, Tencent Holdings’ full-year 2025 revenue reached RMB 751.77 billion, up 14% year-over-year; Non-IFRS net profit was RMB 259.63 billion, up 17%.

Meanwhile, Tencent’s full-year capital expenditure reached RMB 79.2 billion, with R&D spending at RMB 85.75 billion, both hitting record highs.

In 2025, Tencent’s capital expenditures included investments in IT infrastructure, data centers, land use rights, office parks, and intellectual property. In the fourth quarter alone, investments totaled RMB 19.6 billion, mainly for AI infrastructure. Tencent President Liu Ciping stated that in 2025, Tencent will invest RMB 18 billion in new AI products.

Liu Ciping also mentioned that due to GPU (graphics processing unit) supply constraints in 2025, the company’s capital expenditure did not meet expectations. If conditions allow, Tencent plans to increase capital spending and at least double investments in AI and models, which may lead to a reduction in share repurchases.

It was disclosed that in 2025, Tencent repurchased 153 million shares for HKD 80 billion; in 2024, it repurchased 307 million shares for HKD 112 billion.

Morgan Stanley’s research report states that Tencent is increasing investments in foundational models, new AI products, and GPUs. These upfront investments may pressure profit margins in the short term but could create new opportunities in the long run. The bank reaffirmed its “Overweight” rating, lowering the target price from HKD 735 to HKD 650.

Goldman Sachs, in its latest report, pointed out that Tencent is empowering its gaming and advertising businesses with AI while shifting toward an investment phase driven by new AI products. As a result, Goldman Sachs lowered its profit growth forecast for 2026, expecting adjusted net profit to grow 7% year-over-year, below the previous 10% estimate.

Wutong Research analyst Cen Zhiyong analyzed that Tencent’s management is prioritizing AI investments before considering further share buybacks. Investing in AI aligns with future growth potential, and Tencent’s strategy of allocating funds to future growth areas is the right choice. However, in the short term, investor focus may be on buybacks. With reduced buyback amounts, the stock price is likely to face pressure, with HKD 500 serving as a support level in the near term, while long-term prospects depend on future growth potential.

Core Business Shows Positive Trends

Industry competition raises concerns

Looking at individual segments, Tencent’s Value-Added Services (including gaming) revenue last year was RMB 369.28 billion, up 16%; social networking (including music, video, and live streaming) revenue was RMB 127.7 billion, up 5%; marketing services revenue was RMB 144.97 billion, up 19%; fintech and enterprise services revenue was RMB 229.43 billion, up 8%.

According to Tencent Music’s earnings report, in 2025, Tencent Music’s revenue grew 15.8% year-over-year to RMB 32.9 billion, with net profit attributable to the parent increasing 66.4% to RMB 11.06 billion.

However, on March 18, Tencent Music’s Hong Kong stock price dropped 21.8%, and today it continued to fall over 8%. JPMorgan has downgraded Tencent Music from “Overweight” to “Neutral,” lowering its target price from $30 to $12.

For Tencent Music, the number of monthly active users declined, and paid user growth slowed. Meanwhile, ByteDance’s Qu Sui Music and Fanqie Music are growing rapidly, impacting the market.

In Q4 2025, Tencent Music’s monthly active users decreased 5.0% year-over-year; during the same period, paying users increased 5.3%, compared to 20.6% and 13.4% in Q4 2023 and Q4 2024, respectively.

Beyond the music sector, Tencent’s gaming and social businesses also face competition and risks. Whether AI investments can effectively enhance competitiveness remains uncertain.

Qianao Fund investment manager Pan Jun believes that Tencent’s sharp decline after earnings release, coupled with management’s announcement of reduced buybacks, weakens the previously highly certain stock support. For investors holding Tencent as a utility-like or high-dividend stock, this is a negative signal. Additionally, AI investments require heavy capital expenditure, raising concerns that this may dilute Tencent’s profit margins. In the context of aggressive AI investments by competitors like ByteDance, Alibaba, and Baidu, continuing high buybacks while neglecting infrastructure upgrades could put Tencent at a disadvantage in next-generation social and gaming battles.

(This article does not constitute investment advice. Proceed at your own risk.)

Editor: Tao Yueyang

Sources: Yicai, Daily Economic News, Jiemian News, Securities Times, etc.