Core Viewpoint - Goldman Sachs believes that Tencent is one of the Chinese internet companies that can benefit the most from AI applications, as evidenced by its strong Q2 performance and record gross margins [3][4]. Group 1: Financial Performance - Tencent achieved its fastest revenue growth in four years and record gross margins in Q2 [3]. - Revenue and earnings per share forecasts for Tencent from 2025 to 2027 have been raised by 1-6%, with the target price increased from HKD 658 to HKD 701 [3][4]. Group 2: AI Empowerment - AI technology is driving growth across Tencent's business lines, including gaming, advertising, fintech, cloud services, and e-commerce [3][5]. - The advertising and gaming sectors have both maintained over 20% year-on-year growth for two consecutive quarters, attributed to AI's impact [4][6]. Group 3: Advertising Business - Tencent's advertising business, particularly on video platforms, has significant growth potential, with expected revenue growth of 19% and 16% for the fiscal years 2025 and 2026, respectively [4][9]. - The advertising revenue from video accounts and search grew by 50% and 60% year-on-year, respectively, indicating a strong monetization trajectory [10]. Group 4: Gaming Business - Tencent's "platformization" strategy in gaming is reducing reliance on single blockbuster games, leading to more stable growth [6]. - Game revenue grew by 22% year-on-year in Q2, with value-added services achieving record high gross margins [6][8]. - Upcoming games like "Delta Action" and the mobile version of "Valorant" are expected to drive further revenue growth, with projected annual revenues of approximately RMB 90 billion and RMB 70 billion, respectively [7]. Group 5: Capital Expenditure - Despite facing chip supply constraints, Tencent's capital expenditure is expected to rise, with projections for 2025 and 2026 increased to RMB 900 billion and RMB 1,020 billion, respectively [5].

Core Insights - Tencent reported its strongest revenue growth in four years and a record gross margin in Q2, with Goldman Sachs highlighting the company's significant benefits from AI applications [1] - AI technology is driving growth across Tencent's business lines, including gaming, advertising, fintech, cloud services, and e-commerce, with gaming and marketing services both achieving over 20% year-on-year growth for two consecutive quarters [1][2] Revenue and Earnings Forecast - Goldman Sachs raised Tencent's revenue and earnings per share forecasts for 2025-2027 by 1-6%, increasing the target price from HKD 658 to HKD 701 [1] - Capital expenditure forecasts for Tencent were also adjusted upwards, with 2025 projected at RMB 900 billion (up from RMB 730 billion) and 2026 at RMB 1,020 billion (up from RMB 870 billion) [2] Gaming Business Strategy - Tencent's "platformization" strategy in gaming is reducing reliance on single blockbuster games, leading to lower revenue volatility [3] - Revenue growth expectations for Tencent's gaming segment were raised to 18% for 2025 and 11% for 2026, driven by the potential of the game "Delta Action," which has shown strong user engagement [3] Advertising Business Growth - AI has significantly improved the efficiency of advertising, contributing to over 20% year-on-year growth in the advertising segment for two consecutive quarters [4][5] - The advertising business, particularly through video accounts, has substantial growth potential, with expected revenue growth of 19% and 16% for 2025 and 2026, respectively [6] Cloud and Enterprise Services - The enterprise services segment experienced high double-digit growth, with AI-related GPU leasing and API Token sales being key growth drivers [5] Upcoming Game Releases - The mobile version of "Valorant" is set to launch on August 19, with over 60 million pre-registrations, and is expected to generate annual revenue of approximately RMB 7 billion [9] - Core games like "Honor of Kings" and "Peacekeeper Elite" continue to perform well, contributing to overall growth [9]