Bernstein: Tencent's Valuation Under Pressure, Primarily Due to Lagging AI Chatbot Development, But Risk-Reward Positive
Bernstein analysis points out that Tencent's (http:/00700.HK) stock price has fallen by about 8% year-to-date, reflecting market concerns about lagging AI model and chatbot development, as well as the sell-off in gaming stocks triggered by Project Genie. While the AI criticism is valid, Project Genie reflects a misunderstanding of the complexity of games.
Tencent has performed strongly in vision, image generation, and 3D modeling, and is one of the few companies to publicly release 3D world models. However, its Hunyuan Turbo S model only ranks seventh on LMARaena; the recent "Yuanbao" red envelope incident exposed the issue of dual-track AI development within and outside WeChat.
Nevertheless, Tencent provides a solid return on AI investment (ROI) through its advertising and gaming businesses. Assuming operating expenses are deleveraged, the company trades at a projected P/E ratio of 14-15x in 2027, close to the trough levels of 2022-2023. The bank believes the risk-reward is positive, as Tencent will introduce more AI-driven services as earnings grow.
Similar to the cases of Apple and Meta, Tencent's management stated that the iteration of Hunyuan 2.0 will accelerate after its restructuring, and valuation pressure may continue until the AI narrative improves.
