Tencent Sinks 6% as Morgan Stanley Slashes Price Target to HKD650

Morgan Stanley Cuts Tencent Target to HKD650 on AI Cost Concerns

Morgan Stanley slashed its price target for Tencent (00700.HK) to HKD650 from HKD735, flagging that the company's ramp-up in artificial intelligence spending will squeeze profit margins in the near term. The report triggered a sharp investor sell-off on March 18, sending the stock down 5.995% as short-selling volume reached $1.36 billion. The bank pointed to increased upfront investments in foundation models, new AI products, and essential GPU hardware as the primary drivers of the anticipated margin pressure, even as it maintained its 'Overweight' rating on the stock, signaling long-term confidence.

AI Spending to Exceed RMB36 Billion in 2026

Tencent's financial commitment to AI is substantial, with planned investments in new products set at RMB18 billion for 2025. Morgan Stanley projects this figure will more than double in 2026 as the company accelerates its AI initiatives. Key developments include the upcoming public release of its Hunyuan 3.0 foundation model in April. The investment also supports the application of agent-based AI across its ecosystem, including in WeChat, the desktop intelligent workstation 'WorkBuddy', and the WeChat office assistant 'Qclaw'.

Analysts Project 5% Profit Growth in 2026, Lagging Revenue

The brokerage's forecast starkly illustrates the impact of the AI spending strategy on Tencent's profitability. For 2026, Morgan Stanley projects a healthy 10.8% year-over-year revenue growth but a significantly slower 5% year-over-year increase in non-IFRS operating profit. This divergence highlights the market's core tension: weighing the immediate financial drag from heavy capital expenditure against the potential for future revenue streams and competitive positioning in the global AI race.