Morgan Stanley·2026-03-20 09:45Investment Rating - The report maintains an "Overweight" rating for Tencent Holdings, with a target price revised down from HKD 735 to HKD 650 [1] Core Insights - Tencent is increasing its investments in foundational models, new AI products, and GPUs, which may pressure profit margins in the short term but are expected to create new opportunities in the long run [1] - Revenue is projected to grow by 10.8% year-on-year by 2026, with non-IFRS operating profit expected to increase by 5% [1] - Key focus areas include the launch of Mix Yuan 3.0 in April, and the application of agent-based AI in WeChat, the desktop intelligent workspace WorkBuddy, and the WeChat office AI assistant Qclaw [1] - The report suggests that AI is likely to present new opportunities for Tencent, which maintains resilience due to strong network effects, value chain positioning, and regulatory barriers [1] - Tencent is prioritizing new AI capabilities and products to unlock incremental growth and enhance the differentiation of its core business [1] - AI investments are expected to significantly increase, with Tencent projected to invest RMB 18 billion in new AI products in 2025, and this amount is anticipated to more than double in 2026 [1] - These upfront AI investments may lead to profit margin pressure, resulting in slower profit growth compared to revenue growth in 2026 [1]