Tencent's stock price falls below HK$400, hitting a one-year low, with a cumulative decline of nearly 40% this year

Tencent's stock price hit a one-year low.

As of the Hong Kong stock market close on October 21, Tencent Holdings (0700.HK) fell below the HK$400 mark, dropping 4.04% to close at HK$393.8, a new low in nearly a year.

At the beginning of this year, Tencent's stock price once reached around HK$634, corresponding to a market value of about HK$5.76 trillion. Its total market value has now fallen back to HK$3.58 trillion, with a cumulative decline of nearly 40% year to date.

Previously, on August 12, Tencent released its second-quarter financial report, with revenue of 204.79 billion yuan, up 11% year on year; Non-IFRS operating profit was 75.64 billion yuan, up 9% year on year.

What is noteworthy is Tencent's aggressive investment in AI. Data shows that in the second quarter, Tencent's capital expenditure was 52.78 billion yuan, up 176% year on year and up 65% quarter on quarter. Free cash flow in the second quarter was -13.8 billion yuan; excluding prepayments for computing power procurement, free cash flow was 37.6 billion yuan.

It is understood that Tencent Holdings will officially disclose its third-quarter financial report on November 18, 2026.

The core factor changing outside judgments of Tencent's market is not revenue and profit performance, but its heavy investment in AI. According to GF Securities, Tencent's total revenue in the third quarter of 2026 is expected to reach 209.8 billion yuan, with a year-on-year growth rate of about 9%; UBS expects single-quarter revenue to achieve 7% year-on-year growth.

The profit structure shows a structural divergence of "gross margin rising against the trend, while operating profit is constrained in the short term by AI investment." UBS forecasts that, benefiting from the continued expansion of the revenue share of high-gross-margin businesses, Tencent's overall gross margin in the third quarter will rise to 57.2%, up 0.8 percentage points year on year. However, with the full rollout of its AI strategy, depreciation of infrastructure construction and R&D and operating expenses have surged in stages.

UBS estimates that Tencent's AI-related operating expenses in the quarter were as high as 16 billion yuan, directly causing adjusted operating profit to fall 2% year on year to 71 billion yuan, while GF Securities forecasts 70 billion yuan, down 4% year on year.

It is worth noting that the short-term profit pullback does not mean deteriorating operating efficiency. If the impact of strategic AI investment is excluded, Tencent's underlying operating leverage remains solid, and UBS estimates that its endogenous adjusted operating profit growth rate can still reach 13%. In addition, the phased decline in the share of profit contributions from some invested associates is also an important objective factor causing short-term fluctuations in net profit.

In addition, Tencent's investment in AI has not shown a trend of contraction. On October 14, Tencent Holdings announced on the Hong Kong Stock Exchange that the company had respectively entered into subscription agreements with the U.S. dollar note managers for the issuance of U.S. dollar notes with an aggregate principal amount of US$1.8 billion under the plan; and with the RMB note managers for the issuance of RMB notes with an aggregate principal amount of RMB 26 billion under the plan. After deducting underwriting fees, discounts and commissions, the estimated net proceeds from the issuance of the U.S. dollar notes and RMB notes will be approximately US$1.79 billion (approximately RMB 11.977 billion at current exchange rates) and RMB 25.89 billion, respectively. The company intends to use the net proceeds for general corporate purposes, and the outside world generally believes that Tencent will continue to reinvest in AI.

However, Tencent's stock price performance is also partly due to the overall weakness of the industry benchmark. On October 21, the Hang Seng Tech Index closed down 1.26% at 3,995 points, falling below the 4,000-point mark, with the market showing broad declines.

Liu Gang, an analyst at CICC, said that Hong Kong stock market liquidity has tightened significantly this year, with southbound funds recording a cumulative net inflow of only HK$440 billion in the first nine months, significantly lower than the HK$1.4 trillion for the full year of 2025. In terms of allocation, domestic public funds and overseas active funds have both reduced their allocations to Hong Kong stocks to near or even below the "924" bottom. The AI market trend has shifted from the mainline of computing chips and cloud vendors in 2025 to a pattern dominated by storage in 2026, but Hong Kong stocks' lack of hardware sectors has caused them to miss the technology hardware market trend. In addition, leading internet companies in Hong Kong, in addition to being dragged down by consumer demand, also lag behind other large model companies and unlisted companies in AI investment, model R&D and revenue realization. The current market lacks the momentum after the "DeepSeek moment" of 2025.

Source: The Paper Risk Disclosure and Disclaimer

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