---
endpoint: analytics
pattern: Internet
status: done
latency_ms: 194370
conversation_id: 7e3ed54e-9c0c-4ebf-bf54-ee69fe17a263
citations: 10
created: 2026-05-31 21:55:32Z
---

# What’s the bull case bear case for Tencent?

# Tencent (0700.HK / 700) — Bull Case vs Bear Case

Synthesized from CLSA's internal coverage (HC O-PF rating, HK$645 TP, May 2025) [1][2][3][4] and Tencent's most recent Q1 FY2026 earnings call (reported 13 May 2026) [5][6][7][8][9][10].

---

## Snapshot

| Item | Latest data point |
|---|---|
| **CLSA rating / TP** | High-Conviction Outperform; HK$645 12M TP (≈+24% upside) [4] |
| **Latest reported revenue (1Q26)** | RMB 196.5 bn, +9% YoY (+11% YoY ex Spring Festival timing) [5] |
| **1Q26 non-IFRS operating profit** | RMB 75.6 bn, +9% YoY; +17% YoY ex new AI products [5] |
| **Marketing services (1Q26)** | RMB 38 bn, +20% YoY (accel. from +17% in 4Q25) [6] |
| **International cloud (1Q26)** | >+40% YoY [7] |
| **CapEx guidance** | "Substantial increase," weighted to 2H26 as China-designed ASICs ramp [8] |

---

## BULL CASE

### 1. Core engines are re-accelerating and broadening
1Q26 total revenue printed RMB 196 bn (+9% YoY headline, +11% adjusted for Spring Festival shift), with marketing services +20% YoY to RMB 38 bn and international cloud >+40% YoY — both inflecting [5][6][7]. Marketing services has now accelerated for two straight quarters and is being driven by Video Accounts ad load, eCommerce/mini-game advertiser demand, and the new AI Marketing Plus automated campaign tool, which already powers ~30% of marketing spend on the platform [6].

### 2. Games pipeline at lifetime highs
In 1Q26 Honour of Kings, Peacekeeper Elite and Delta Force each hit lifetime-high quarterly gross receipts, with Peacekeeper Elite peak DAU at 90 m. VALORANT MOBILE has held a top-10 industry ranking since its Aug-2025 launch, and creature-collector Roco Kingdom: World scaled to 13 m DAU within one month of release [10]. CLSA's thesis pre-results was that Tencent runs a "strong game pipeline" with the optionality of porting domestic blockbusters overseas, supported by deeper investment in overseas studios [1].

### 3. AI deployment is now a revenue driver, not just an expense line
Tencent's revamped Hunyuan team launched Hunyuan 3 preview in April 2026; per management, the model ranked first in OpenRouter token usage since 28 Apr 2026 and is deployed across 131 internal products including Yuanbao, QQ and WorkBuddy [5]. Token usage on Tencent Cloud has been growing rapidly as enterprise AI-agent adoption picks up. CLSA's catalyst list explicitly includes ad-revenue ramp from Video Accounts, overseas game expansion, and LLM/Yuanbao progress [2].

### 4. WeChat ecosystem monetization still in early innings
Mini Shops branded merchant GMV more than tripled YoY in 1Q26, Weixin Search query volume grew >25% YoY (now incorporating image queries), and Video Accounts total time spent rose >20% YoY [10]. CLSA highlights "ample room for growth" in social via mini-games, video-account streams and incremental ad-share capture — explicitly noting fintech could be the next leg up via LLM-enabled product upgrades [1].

### 5. Capital return + valuation cushion
CLSA's SOTP uses a 12.4% WACC and 1.5% terminal growth on the core business DCF, plus 3x 25CL P/S on fintech and 5x P/S on cloud, deriving HK$645 [4]. The stock trades around 15x 26CL adj. PE on CLSA's forecasts — a discount to global mega-cap peers — with an ~HK$80 bn 2025 share-buyback target supporting EPS.

---

## BEAR CASE

### 1. Margin compression from a heavy AI capex cycle
Management has now explicitly committed to "a substantial increase in CapEx, especially in the second half of [2026] as more China-designed ASICs become available" [8]. Operating capex was already +18% YoY and +84% QoQ in 1Q26, and selling & marketing expense jumped +44% YoY as AI-native apps are promoted [5]. CLSA flags margin pressure from new investments (cloud, payments, AI) as a core risk; the revenue/profit growth gap may widen before it narrows [3].

### 2. Game monetization concentration + saturation risk
While headline gaming is strong, CLSA flags a "structural decline in the PC gaming industry" and "intense competition in mobile and PC games as the market becomes saturated" as a key risk [3]. Several legacy titles are already rolling — LoL: Wild Rift quarterly grossing was down ~60% YoY at one point in 2025, and Naruto Mobile/Fight of the Golden Spatula softened — so the franchise mix is increasingly reliant on a handful of mega-hits (HoK, Peacekeeper Elite, Delta Force) staying at lifetime peaks.

### 3. Regulatory & geopolitical overhang
CLSA's stated risks include antitrust, data security, gaming-content and online ecommerce regulation, and explicitly call out the U.S. action adding Tencent to a list alleging links to "China military companies" [3]. ADR delisting risk for U.S.-listed China internet names is a recurring CLSA theme through 2025, and any escalation of "trade war 2.0" remains a discount overhang on the multiple.

### 4. AI-agent disruption to ad-supported behavior
On the 1Q26 call, CSO James Mitchell acknowledged that as "AI agents play a bigger role in the future in facilitating price comparison," users may spend less time on eCommerce surfaces and "be less exposed to ads" — and although he framed this as primarily an eCommerce risk, the read-through to Weixin Search and Mini Programs ad monetization is non-trivial if agent-based commerce displaces browse-and-discover behaviour [9].

### 5. WeChat monetization is still "early" — not yet de-risked
CLSA's bull case explicitly hedges that WeChat monetization is "still in an early stage" with "uncertainty around monetising WeChat" listed as an explicit risk factor [3]. Mini Shops, Video Account commerce and Search advertising are all promising, but none has yet been proven as a durable, multi-year RMB100bn-class revenue line — meaning the stock's optionality value can decay if any of these threads stalls.

---

## Verdict (per CLSA)

CLSA reiterates **High-Conviction Outperform** with TP HK$645 (~24% upside), citing accelerated games + ad growth, AI-enabled WeChat features and a defensive demand profile through tariff uncertainty [4]. The bull/bear pivot in the next 6–12 months hinges on (a) whether AI capex translates into incremental ad/cloud/Yuanbao revenue at acceptable ROIs and (b) whether HoK / Peacekeeper Elite / Delta Force can sustain lifetime-high gross-receipts trajectories.

---

**Sources**
[1] Tencent – HC O-PF (Accelerated game and ad growth) — CLSA, 14 May 2025 — Investment thesis section (607959476LinqAlpha.PDF)
[2] Tencent – HC O-PF — CLSA, 14 May 2025 — Catalysts section (607959476LinqAlpha.PDF)
[3] Tencent – HC O-PF — CLSA, 14 May 2025 — Investment risks section (607959476LinqAlpha.PDF)
[4] Tencent – HC O-PF — CLSA, 14 May 2025 — Valuation/SOTP section (607959476LinqAlpha.PDF)
[5] Tencent Holdings Ltd. — Q1 2026 Earnings Call, 13-May-2026 — Pony Ma / Martin Lau opening remarks (revenue, Hunyuan 3, AI agents)
[6] Tencent Holdings Ltd. — Q1 2026 Earnings Call, 13-May-2026 — James Mitchell on Marketing Services
[7] Tencent Holdings Ltd. — Q1 2026 Earnings Call, 13-May-2026 — James Mitchell on Cloud international growth
[8] Tencent Holdings Ltd. — Q1 2026 Earnings Call, 13-May-2026 — James Mitchell to Kenneth Fong (UBS) on CapEx guidance
[9] Tencent Holdings Ltd. — Q1 2026 Earnings Call, 13-May-2026 — James Mitchell to Alicia Yap (Citi) on AI agents & ads
[10] Tencent Holdings Ltd. — Q1 2026 Earnings Call, 13-May-2026 — James Mitchell on Honour of Kings / Peacekeeper Elite / Delta Force / VALORANT MOBILE / Roco Kingdom

## Citations

- [1] **607959476LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959476LinqAlpha.PDF>
- [2] **607959476LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959476LinqAlpha.PDF>
- [3] **607959476LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959476LinqAlpha.PDF>
- [4] **607959476LinqAlpha.PDF** · clsa — <s3://ext-linq-rms-clsa/2025/05/607959476LinqAlpha.PDF>
- [5] **Tencent Holdings Ltd., Q1 2026 Earnings Call, 13-May-2026 8** · external
- [6] **Tencent Holdings Ltd., Q1 2026 Earnings Call, 13-May-2026 8** · external
- [7] **Tencent Holdings Ltd., Q1 2026 Earnings Call, 13-May-2026 8** · external
- [8] **Tencent Holdings Ltd., Q1 2026 Earnings Call, 13-May-2026 8** · external
- [9] **Tencent Holdings Ltd., Q1 2026 Earnings Call, 13-May-2026 8** · external
- [10] **Tencent Holdings Ltd., Q1 2026 Earnings Call, 13-May-2026 8** · external

