Citigroup: Lowering Tencent (00700) target price to HK$758, holding a cautious attitude towards second quarter AI spending and profit drag.

Citigroup released a research report stating that potential buybacks, AI investments, and enhancing core business growth through AI will continue to be top priorities for TENCENT (00700). Citigroup has lowered its target price from 763 Hong Kong dollars to 758 Hong Kong dollars to reflect changes in the portfolio value. Based on its status as an AI investment target, the buy rating is maintained. Tencent will announce its second-quarter 2026 results on August 12. The bank believes that, although the expected benefits from seasonal factors are weak, the gaming business remains strong, coupled with steady growth in advertising revenue, overall revenue growth will be solid. However, caution is held towards AI spending and profit drag, therefore profit assumptions are more conservative than market expectations. In the second half of 2026, the bank expects Tencent's focus to remain on Agentic AI testing within WeChat, integration of mini programs with Hy3, the release of the next generation iteration/upgrade of Hy models, and capital expenditures. In addition, the bank believes Tencent will continue to evaluate its portfolio, rotating and rebalancing between strategic AI-related investments and mature industries.