Tencent Earnings: Accelerated Growth, Stepped-Up AI Bets

Key Morningstar Metrics for Tencent Holdings

• Fair Value Estimate: $91.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Tencent’s Earnings

Tencent TCEHY delivered robust fourth-quarter earnings—revenue rose 11% year over year and adjusted operating profit grew 21%. It provided 2025 capital expenditure guidance of about CNY 90 billion (USD 12.5 billion). However, share buybacks for 2025 were reduced by about 30% compared with 2024.

Why it matters: Operating profit was in line with our expectations, but management’s pivot toward investing for future growth is noteworthy. The projected 30% increase in capital expenditure this year reflects stepped-up investments into artificial intelligence, which are being funded by a reduction in share buybacks.

• Tencent’s capex guidance appears more measured and return on investment-focused compared with peers like Alibaba. However, management emphasized that plans are subject to change, and it remains highly flexible in adjusting chip orders based on market demand.

The bottom line: We raise wide-moat Tencent’s fair value estimate by 1% to $91 per share, as higher advertising and cloud revenue more than offset the increase in capex. Despite the recent rally, we still view Tencent’s shares as undervalued, trading at a 25% discount to our valuation.

• Tencent’s shares are trading at about 20 times core earnings for 2025. We believe this is a more accurate multiple than the headline P/E ratio, as it excludes equity investment gains on profit and their value from Tencent’s market capitalization.

Between the lines: Tencent highlighted that its top five domestic games posted daily active user growth during the 2025 Spring Festival compared with 2024, underscoring their increasing popularity and pointing to continued growth for the company’s largest earnings contributor this year.