Tencent Holdings' share price has dropped below HK$400, marking its lowest level in nearly a year. The tech giant has witnessed a staggering cumulative decline of nearly 40% in its market value this year, signaling a significant retreat in its overall valuation. In response, Haitong International has adjusted its target price downward by 2% to HK$470, while maintaining an "Outperform" rating on the stock. Analysts predict that Tencent's revenue will grow by 9% year-on-year in the third quarter. However, due to the impact of AI-related depreciation and investments in product development, its adjusted operating profit is expected to decline by 5% year-on-year. For the full year, revenue is projected to increase by 10% year-on-year, with adjusted net profit rising by 2% year-on-year.

In terms of business segments, Tencent's domestic gaming sector continues to hold a leading market position. In contrast, international gaming revenue is anticipated to experience a year-on-year decline. Growth in marketing services may decelerate, while payment services remain sluggish. Meanwhile, enterprise services are expected to partially mitigate some of the downward pressures. In the second quarter, Tencent reported increased revenue but failed to achieve corresponding profit growth. Additionally, the company experienced a temporary negative free cash flow, largely attributable to substantial investments in AI technologies.

Tencent has stated that its AI investments are geared towards long-term growth and that it has devised an alternative profit-making strategy through computing power leasing. Currently, the company is contemplating issuing dual-currency offshore bonds worth up to US$5 billion. Market speculation suggests that the proceeds from these bond issuances will be primarily earmarked for AI investments. Looking ahead, the market's focus will shift to whether Tencent's actual third-quarter performance aligns with expectations, as well as the progress made in user conversion and the rollout of paid pilot programs for its AI products.