Jefferies has released a research report reducing its price target for Tencent (00700) by approximately 5%, from HK$711 to HK$711, to reflect the latest business and industry trends as well as changes in sector valuation.

Jefferies expects Tencent to increase its investment in the artificial intelligence (AI) sector, while adopting a more cautious view on its advertising and fintech businesses. Nevertheless, the firm remains optimistic about the company's diversified growth drivers and AI development strategy, maintaining its "Buy" rating.

Jefferies has broadly kept its third-quarter revenue forecast for Tencent unchanged, projecting year-on-year revenue growth of 8.6% to RMB 209 billion, slightly below the market consensus of 9% growth.

However, the broker has raised its estimates for Tencent's AI spending in the second half of this year and in 2027. The related investments cover computing power, model and application development, as well as using AI to improve the efficiency of existing businesses.

At the same time, amid macroeconomic uncertainties, Jefferies has adopted more conservative forecasts for Tencent's advertising and fintech services. The broker estimates third-quarter marketing services revenue will grow 18% year on year, slightly below its previous forecast and the market consensus of 19%. Fintech and business services revenue is expected to grow 8%, below the anticipated 9.2%.

On the gaming side, Jefferies expects online games revenue to grow 8% year on year, in line with market expectations. Among this, international games are projected to decline approximately 3% year on year, mainly due to the appreciation of the renminbi, the high base formed by buy-to-play game launches in the same period last year, and the faster-growing Miniclip in-app advertising revenue being classified under marketing services rather than international games revenue.

Based on increased AI investment and weaker growth forecasts for certain businesses, on a non-IFRS basis, Jefferies expects operating profit to decline approximately 4% year on year to RMB 69.6 billion, with profit also falling 8% to RMB 64.9 billion.

Jefferies stated that the market will focus on the following 12 areas: the latest progress of the AI strategy and market feedback on the latest development trends of WorkBuddy; market attention to user feedback from WeChat AI testing; the competitive landscape of AI models and market feedback following the official release of HY4; domestic online game strategy, including revitalizing existing games such as "Honor of Kings" and PKE, as well as the latest progress of emerging game IPs; the outlook for the international gaming business; the outlook for the advertising business and trends across different industry categories; fintech revenue trends, including payment and non-payment businesses; the outlook for cloud business revenue; capital expenditure and free cash flow (FCF) trends; operating expense trends; AI commercialization opportunities and latest progress across different business segments; earnings growth in the second half of 2026 and 2027; and shareholder capital returns.