Shares of Tencent Holdings (0700.HK) extended their late-session losses, dropping as much as 4.77% and briefly pushing the tech giant’s total market capitalization below HK$4 trillion. In Q2 2026, Tencent reported revenue of RMB 204.785 billion, marking an 11% year-on-year increase and a 4% quarter-on-quarter rise, outperforming market forecasts. Gross profit climbed 13% year-on-year and 6% quarter-on-quarter to RMB 118.433 billion. However, net profit reached RMB 56.022 billion, up just 0.7% year-on-year but down 4% quarter-on-quarter, falling short of expectations. Adjusted net profit, a key metric for investors, rose 9% year-on-year and 0.8% quarter-on-quarter to RMB 68.415 billion. During the quarter, Tencent’s capital expenditures surged to RMB 52.78 billion, driven by investments in computing infrastructure, resulting in negative free cash flow. This sparked concerns that the company’s early-stage bets—particularly in AI—may not deliver short-term returns. Morgan Stanley highlighted that Tencent’s core business performance is being overshadowed by heavy upfront spending in artificial intelligence, projecting flat earnings growth from H2 2026 through 2027. The bank slashed its price target by over 15% to HK$550 while retaining an “overweight” rating, reflecting cautious optimism about long-term potential despite near-term headwinds.