Tencent Holdings: 1Q26 Review: AI offense + resilient core = underappreciated upside potential

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Tencent Holdings: 1Q26 Review: AI offense + resilient core = underappreciated upside potential

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Tencent Holdings

1Q26 Review: AI offense + resilient core =

underappreciated upside potential

Reiterate Rating: BUY | PO: 780.00 HKD | Price: 460.20 HKD

Model, Capex, Agent: AI re-rating pathway ahead 15 May 2026

After 1Q26 results (see note, 1Q26 First Take), our discussion with management made Equity

us believe that Tencent is adopting a more aggressive approach in AI model/compute

capacity/applications. With AI rapidly evolving, we recommend investors assess

Key ChangesTencent’s AI strategy by focusing on incremental progress—such as major step-up of

capex and solid HY3.0 development. Trading near-trough 13x 2026 PE on our slightly (CNY) Previous Current

below consensus EPS (6% YoY), we believe the market is taking an overly narrow and 2026E EPS 29.74 29.89

static view on what defines AI benefitiary (current narrative: cloud/chip = good) hence 2027E EPS 32.45 32.02

significantly underestimates Tencent’s AI optionality and core business resilience. We 2028E EPS NA 35.63

continue to see a clear re-rating pathway for Tencent ahead – 1) more HY model family

upgrades in the next 3-6 months; 2) acceleration of capex and cloud revenue in next 6- Alex Liu >>

Research Analyst

12 months; 3) Weixin Agent roll-out in the next 9-18 months. Merrill Lynch (Hong Kong)

alex.liu3@bofa.com

Joanna Du >>More thoughts on AI strategy post 1Q26 results

1) For capex, we expect meaningful pick-up with likely back-end loaded growth for 26E Merrill Lynch (Hong Kong)

– we lift capex forecasts to RMB150bn/180bn in 26/27 (from 95bn/120bn). Tencent’s joanna.du@bofa.com

capex intensity still only 50-60% of operating cash flow in 26-27E; 2) While Tencent