Daiwa anticipates that Tencent Holdings will elevate its expectations regarding AI capital expenditure, a strategic shift that could potentially exert downward pressure on its earnings in the medium term. Concurrently, while the growth rate of its gaming business has decelerated due to a high comparative base, its market share expansion remains vigorous. In light of these factors, Daiwa has adjusted its earnings-per-share forecasts for Tencent downward by 1% to 6% from 2026 to 2028. Despite this, Daiwa maintains a 'Buy' recommendation on the stock, albeit lowering the target price from HK$700 to HK$670. Furthermore, Daiwa has substantially increased its projection for Tencent's AI capital expenditure in 2026, revising it from RMB 108 billion to an estimated RMB 181 billion. Although this surge in investment may dampen near-to-medium-term profitability, it is anticipated to catalyze the expansion of Tencent's cloud business and accelerate the monetization of AI-driven demand, with potential positive impacts becoming evident from the second half of 2026 onwards. In terms of the gaming sector, Daiwa has trimmed its growth forecast for Tencent's gaming division in the second quarter of 2026 from 14% to 10%. Specifically, the growth projections for domestic and international gaming segments have been revised down to 12% and 9%, respectively. This adjustment primarily stems from the underwhelming performance of several gaming titles during the Lunar New Year period and the aforementioned high base effects.