Tencent Holdings (HK:0700) shares declined 1.8% on Tuesday, sliding to HK$438.40 as the market reacted to a reduced price target from Mizuho. The move left Tencent lagging the Hang Seng Index, which fell 0.5% that day.
Mizuho retained a "Neutral" recommendation on the technology conglomerate but lowered its price target to HK$560 from HK$610. The brokerage said the company’s expanding investment in artificial intelligence has made the pathway to stronger returns less certain, and that investors are seeking clearer evidence that this spending will translate into meaningful financial outcomes.
The company’s latest results showed total revenue accelerating 11% year-on-year, coming in roughly 1% above Bloomberg consensus, with the improvement led primarily by domestic gaming and advertising. Operating income fell slightly short of expectations as Tencent stepped up AI-related spending, although the operating margin still widened by 30 basis points year-on-year.
A central concern for Mizuho is cash generation. Tencent’s free cash flow turned negative in the quarter as capital expenditure surged to a record RMB52.8 billion, underscoring the near-term cost of its AI push.
Within the revenue mix, advertising was a notable bright spot, rising 22% year-on-year, while the company’s cloud division saw growth accelerate into the low-20% range from the high-teens reported in the previous quarter. These pockets of strength were contrasted by other areas under pressure.
Mizuho acknowledged progress in Tencent’s internal AI development. The brokerage noted that the firm’s HY3 model ranked among the top three globally on OpenRouter by token usage. Despite this, Mizuho cautioned that Tencent does not currently lead in the two AI application areas where subscription-based monetization has the clearest global evidence: coding assistants and AI-native video.
The broker also flagged weakness in international gaming, which recorded its first year-on-year decline since early 2022. Looking ahead, Mizuho expects Tencent’s AI investment cycle to continue and identified several products to monitor, including a next-generation flagship large language model, a text-to-video model, an enterprise-focused CodeBuddy, and integration of Xiaowei into WeChat.
On projections, Mizuho largely left its fiscal 2026 and 2027 earnings estimates unchanged but trimmed the valuation assumptions applied, pointing to recent softness across the broader AI sector as the reason for the adjustment.
While the brokerage stopped short of a downgrade in its recommendation, the lower price target and revised valuation assumptions reflect greater caution among analysts and investors as Tencent balances near-term investment intensity with the need to demonstrate durable, cash-generative returns from its AI initiatives.