Tencent Holdings Ltd. (00700.HK) reported a 9 percent rise in first-quarter revenue that missed analyst estimates, while net profit grew 11 percent to meet expectations as the company deepens its investment in artificial intelligence.
The results indicate resilient profitability in the company's core businesses, providing the cash flow to support its AI ambitions, CICC analysts said in a research note. The bank maintained its "Outperform" rating and a HKD 666 price target on the stock.
The Shenzhen-based technology giant’s revenue growth was affected by the deferral of some game-related receipts into subsequent quarters due to the timing of the Spring Festival holiday. CICC forecast that domestic game revenue would rebound to grow 12 percent year-over-year in the second quarter, with a 10 percent rise in overseas game revenue. For the first quarter, non-IFRS operating profit, excluding new AI products, increased 17 percent from the prior year.
At stake is Tencent's ability to balance significant, long-term investments in foundational AI models with maintaining growth in its primary revenue drivers of gaming and social media. The company recently open-sourced its Hunyuan 3.0 large language model, which is being integrated into more than 130 internal products, signaling a strategic push to build a differentiated ecosystem.
Tencent's gaming division, the world's largest, saw what the company called promising growth in gross receipts for its evergreen titles. However, the revenue recognition timing weighed on the reported figures for the quarter.
The company's music and entertainment subsidiary, Tencent Music Entertainment (NYSE: TME), separately reported a 7.3 percent revenue increase in its own first-quarter results, driven by a 28 percent jump in non-subscription services like live concerts and merchandise. This highlights a broader strategy within the Tencent ecosystem to diversify revenue streams beyond core services.
Looking ahead, CICC projects Tencent's adjusted operating profit and adjusted net profit to grow 7 percent and 9 percent year-over-year, respectively, in the second quarter of 2026.
The performance of Tencent's Hunyuan AI model will be a key focus for investors. The company aims for it to balance practicality with cost-effectiveness, and its wider deployment is a critical part of its strategy to defend its market position against rivals like Alibaba and ByteDance.
The first-quarter results show Tencent's core operations remain profitable, providing a stable base for its costly AI development. Investors will be closely watching the second-quarter report for the expected rebound in gaming revenue and further details on the monetization of its AI initiatives.
This article is for informational purposes only and does not constitute investment advice.
