Goldman Sachs has released a research report stating that TENCENT (HKEX: 00700) shares have declined approximately 27% year-to-date. This drop is primarily attributed to market concerns over the company's progress in AI development and the low visibility of return on investment for consumer-facing AI agents, leading to a contraction in its valuation. With the current share price trading at around 12 times the forecasted 2026 price-to-earnings ratio, Goldman Sachs believes Tencent's valuation multiples have likely bottomed out, which could provide support for the stock. The firm reiterates its "Buy" rating on Tencent with a target price of HK$700.
The report highlights Tencent's recent initial progress in its AI strategy. This includes a significant year-on-year increase in AI-related capital expenditures, the leading position of its Hunyuan Hy3 model in terms of token usage on third-party API channels, and the positive development of its enterprise AI business, such as the intelligent agent Workbuddy.
Looking ahead, Goldman Sachs anticipates an acceleration in the growth of Tencent Cloud. It also forecasts that advertising revenue can maintain high-teen to 20% growth. Furthermore, the report suggests that WeChat's AI agent is expected to launch a pilot program in the second half of the year.
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