Morgan Stanley Cuts Tencent Target Price to HK$650, Says AI Investment Expected to Drag Profit Margins in Near Term

MaticHoleFiller · 2026-03-20T13:21:31+00:00

Tencent Holdings' stock price fell more than 5% at one point, with Morgan Stanley downgrading its target price to 650 Hong Kong dollars due to the company's increased investment in AI products and GPUs, which will impact profits in the short term. Revenue is expected to grow 10.8% in 2026, and in the long term, AI investments are expected to bring new growth opportunities.

MaticHoleFiller

2026-03-20 13:21:31

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Tencent Holdings’ Hong Kong shares once dropped over 5%, marking the largest intraday decline in over six weeks. Morgan Stanley stated that Tencent is increasing investments in foundational models (Hunyuan 3.0), Yuanbao and other new AI products, as well as GPUs. These early investments will put short-term pressure on the company’s profit margins; the target price has been lowered from HKD 735 to HKD 650.

Morgan Stanley analyst Gary Yu and others noted in the report that they have cut Tencent’s 2026 and 2027 non-IFRS operating profit estimates by 6%-7% to reflect higher AI-related investments. Tencent’s revenue is expected to grow 10.8% in 2026, with non-IFRS operating profit increasing by 5%. In 2025, Tencent invested 18 billion RMB in new AI products, which is expected to more than double in 2026.

In the long term, Tencent’s investments in AI are expected to unlock new growth opportunities. The firm maintains an overweight rating on the stock.

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