Morgan Stanley lowered its target price on Tencent to HK$550 from HK$650 while maintaining an Overweight rating, arguing that the company's core businesses remain strong but a faster push into artificial intelligence is likely to keep earnings broadly flat from the second half of 2026 through 2027. The bank said Tencent is accelerating AI investment in the second half of this year, centered on its Hunyuan model family and productivity tools including WorkBuddy and CodeBuddy, with Hy4 due later this year. It lifted its 2026 and 2027 capital expenditure forecasts to RMB 200 billion for each year, cut its 2026 non-IFRS operating profit forecast by 1.8% and reduced its 2027 estimate by 12.3%, while projecting non-IFRS operating margin to narrow from 37.3% in 2025 to 35.5% in 2026 and 32.4% in 2027. The report said Tencent's second-quarter performance was broadly in line with expectations, with revenue up 11% year over year, ahead of estimates and led mainly by advertising, while non-IFRS operating profit rose 9.2%. Third-quarter revenue growth is expected to stay solid at 10.6%, but operating profit growth is seen slowing to 2.7% as AI spending rises. Morgan Stanley said Tencent's strengths in WeChat, gaming and advertising give it durable advantages, and added that excess AI infrastructure capacity could be monetized through Tencent Cloud, offering some downside protection. It also noted the stock trades at about 13.1 times 2026 forward earnings, near the low end of its historical range, while its target price implies 15.6 times forward P/E (price-to-earnings ratio, a valuation multiple) for this year. Citi took a more bullish view, raising its Tencent target to HK$765 and reiterating a Buy rating, highlighting clearer payoff from AI initiatives and resilient core operations. The split between the two brokerages underscores a broader market debate over whether Tencent's large AI outlays can generate near-term returns or mainly defer profit growth in exchange for longer-term competitiveness.