Guosen Securities released a research report highlighting Tencent's (00700) recent investor meeting, where management shared updates on overseas cloud services, international gaming, and AI-driven innovations. The report notes that Tencent's overseas business is accelerating, with cloud services adopting an "infrastructure-first" strategy to expand globally, leveraging technological and localization advantages to support Chinese enterprises going abroad and attract local clients. Overseas markets are emerging as a clear second growth driver for the company. Guosen maintains an "Outperform" rating.
**Overseas Cloud Business: Infrastructure Expansion and Localization** Tencent Cloud's "infrastructure-first" approach has accelerated data center deployments across Asia, the Middle East, and Europe, now covering 22 regions globally. Its core strengths lie in technological leadership (e.g., media cloud, audio-video transmission, FinTech solutions) and deep localization. Successful migrations of key clients like Indonesia's GoTo and Thailand's CP Group demonstrate its ability to enter markets with cost-efficient solutions and optimized architecture (e.g., faster response times, local IDC deployment). Competition overseas remains relatively mild, with Tencent focusing on SaaS and PaaS offerings, primarily serving Chinese enterprises expanding abroad and local internet firms. Despite chip supply challenges, Tencent prioritizes internal AI model training while utilizing CPU resources for inference needs. Many overseas clients already possess GPU resources, and Tencent assists in optimizing their usage.
**Overseas Gaming: Industrialization and GaaS Capabilities** Tencent's overseas gaming revenue surged 43% YoY in Q3, with full-year 2025 projections reaching RMB75.7 billion (32% of total gaming revenue, up 3 percentage points). Growth is driven by: 1) Maturation of Tencent’s industrialization capabilities, and 2) The delayed payoff of overseas studio acquisitions (typically 4–5 years). Tencent adopts an open collaboration model, partnering with top-tier studios (e.g., investing in Steam-ranked titles for mobile adaptation) and optimizing long-term content planning for acquired studios like GGG (Path of Exile). By combining domestic industrialization efficiency (e.g., rapid iteration in Delta Force) with overseas creative strengths, Tencent is successfully replicating its Games-as-a-Service (GaaS) model globally, leading in markets like Southeast Asia.
**AI in Gaming: Efficiency Gains to Experience Innovation** At Lightspeed Studios, 95% of employees use AI tools, transforming game development (e.g., 50% efficiency gains in 2D art, 8% cost reduction in 3D modeling). AI also enhances player retention through features like AI teammates and coaches. Technologically, Tencent has moved beyond pure large language models (LLMs), achieving basic "scene coherence" and "real-time generation" (e.g., dynamically rendering environments as players move). However, LLM-based games still face challenges like robotic character behavior. Tencent’s gaming expertise and AI investments position it as a pioneer in AI-native gaming.
**Investment Outlook & Risks** Overseas markets are now a clear second growth pillar for Tencent’s gaming and cloud segments, with early strategic investments yielding results. Guosen maintains its profit forecasts, projecting adjusted net profits of RMB262.6/301.3/345.4 billion for 2025–2027. Risks include policy changes, macroeconomic weakness, ad industry competition, game launch delays, and AI ethics concerns.
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