Tencent’s $280 Billion Rally May Extend as Games Boost Earnings

Core Viewpoint - Investors are increasingly favoring Tencent Holdings Ltd. as a safer investment amid concerns over a potential bubble in technology stocks, particularly in the artificial intelligence sector [1]. Group 1: Company Performance - Tencent is expected to be one of the few major Chinese tech companies to report positive profit growth in the upcoming results, with a projected earnings growth of 5% year-over-year for the September-ended quarter [6]. - The company's market value has increased by approximately $280 billion this year, driven by strong performance in its online games business [1]. - Tencent's shares have surged 58% this year, yet they still trade at a significant discount compared to global tech peers like Amazon.com Inc. and Nintendo Co. on earnings-based multiples [4]. Group 2: Competitive Landscape - Tencent faces less competition in its sector, which contributes to its defensive growth profile, making it an attractive option for investors [3]. - In contrast, competitors such as Alibaba Group Holding Ltd. and JD.com Inc. are experiencing declines in earnings due to intense price wars and other market pressures, with estimated earnings declines of over 60% for these companies [6]. - The gaming sector, particularly Tencent's unique intellectual property, fosters strong player loyalty and price resiliency, unlike the steep discounting strategies seen in other sectors like online food delivery and electric vehicles [5]. Group 3: Market Sentiment - The stock has risen by 4.5% this month, reflecting positive investor sentiment, while rivals have seen declines [2]. - Short interest in Tencent is notably low, at less than 0.1% of its free float, indicating a shift in market sentiment towards the company [2].