At some point in the past year, stock markets went from celebrating increased spending on artificial intelligence and infrastructure to punishing companies that spent more than analysts expected. However, a change in investor sentiment does not mean that the underlying business strategy or fundamental rate of return relative to capital investment expectations has changed. This could represent a huge opportunity for long-term investors.
The most recent victims of changes in investor behavior are tencent holdings (TCEHY 0.89%). Management announced plans to double its AI investment this year, and the market sold off the stock following the announcement despite otherwise strong financial results. For long-term investors, this could be a great buying opportunity.
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Big advantages of artificial intelligence
Investors have recently become bearish on Tencent over concerns that its apps and games will be challenged by AI chatbots and agent applications. Moreover, the company’s cloud computing division has been slow to grow compared to competitors such as: alibaba. Therefore, the company finds itself in a tight spot in terms of how its spending on AI will impact its stock price. If you spend more, investors will think it’s a waste of money. If spending declines, investors will assume they have given up completely.
However, Tencent’s increased investment in AI is not financially reckless at all. By enhancing ad targeting, content recommendations, and engagement within the WeChat (Weixin) ecosystem, we are well-positioned to generate significant revenue from AI development. AI can also help generate content and assist game business developers, potentially enabling more engaging games.
Tencent is in a similar position. meta platform (meta 3.98%) In the US, we are effectively leveraging our in-house AI developments to improve platform engagement and monetization. But the spending increases Meta announced in January also pushed the stock lower.
Today’s changes
(-0.89%) $-0.56
current price
$62.18
Key data points
Market capitalization
$567 million
daily range
$61.64 – $62.68
52 week range
$52.30 – $87.68
volume
3.4M
average volume
3.4M
gross profit
54.91%
dividend yield
0.91%
In fact, Tencent has a business that generates huge amounts of cash from games, subscriptions, and advertising. Revenue from value-added services (games and music/video subscriptions) grew 16% in 2025. Marketing services increased by 19%. Overall, free cash flow increased by 18% last year, and net cash on the balance sheet increased by 40% to RMB107.1 billion.
Management said that in 2026, “increased profits from existing operations should be sufficient to cover additional investments in these new AI products.” This may mean management expects net income to increase this year, but increased spending will still weigh on overall profit margins. This is consistent with comments made by Meta’s management earlier this year.
The margin effect of enhanced AI investments is evident in our fourth quarter results, where we spent RMB 7 billion on large-scale language models, HY, development, and AI chatbot Yuanbao. As a result, adjusted EBITDA margin decreased sequentially.
However, given the opportunity to monetize investments in AI products and services through its extensive ecosystem of apps and cloud computing business, Tencent is making a smart strategic decision to increase spending. Despite expectations for double-digit earnings growth, the stock trades at just 17 times forward earnings, making it look like great value at the moment.
