On October 20, Nomura released a report forecasting that Tencent Holdings (00700.HK) would see a 9% year-on-year revenue increase in the third quarter, largely in line with expectations. However, due to ongoing investments in artificial intelligence, its non-International Financial Reporting Standards (non-IFRS) operating profit is expected to decline by 3% year-on-year to RMB 70.3 billion, which is 2% lower than market expectations. The report also noted that Tencent's non-IFRS operating profit margin is projected to decline by 4.1 percentage points year-on-year to 33.5%, with capital expenditures reaching RMB 58.7 billion, up 11% quarter-on-quarter and 352% year-on-year. Considering the pressure on profit margins from AI investments and the slowdown in gaming business growth, Nomura has lowered its non-IFRS earnings per share forecasts for Tencent for fiscal years 2026 and 2027 by 2% and 3%, respectively. Nevertheless, Nomura maintains its 'Buy' rating for Tencent but has reduced the target price from HK$695 to HK$659 to reflect the weakening earnings outlook. The new target price represents 19 times the forecasted price-to-earnings (P/E) ratio for fiscal year 2027, compared to Tencent's current share price, which corresponds to a P/E ratio of 12 times.