Tencent Stock Valuation 2025: Investors Bet on AI, Gaming, and a Return to Glory

Tencent’s Stock in 2025: Discounted Valuation Meets High Expectations

Tencent Holdings, the Chinese technology giant behind WeChat and some of the world’s most popular video games, has staged a remarkable comeback in 2025. After years of regulatory headwinds and market skepticism, Tencent’s stock has surged—adding over $150 billion in market value this year alone. Yet, despite this rally, Tencent shares remain about 21-26% below their all-time high, and trade at a notable discount compared to global tech peers like Meta Platforms, Sony, and Nintendo.

This gap between Tencent’s current valuation and its historical highs has caught the attention of investors worldwide. With robust earnings, a diversified business portfolio, and ambitious investments in artificial intelligence (AI), many now see Tencent as a compelling opportunity in the global tech landscape. But can the company sustain its momentum and close the valuation gap in the coming year?

Why Is Tencent’s Stock Still Discounted?

Despite its impressive recovery, Tencent’s shares are trading at around 17.6 to 22 times estimated forward earnings for 2025—well below the five-year average of 20 times and significantly less than peers like Meta and Sony, which trade at about 22 times, and Nintendo, which commands nearly 40 times earnings. This discount reflects a mix of lingering concerns and cautious optimism among investors.

Several factors have contributed to Tencent’s undervaluation:

• Regulatory Overhang: China’s sweeping crackdown on its tech sector in 2021-2022 hit Tencent hard, driving its stock to a five-year low. Although regulatory pressure has eased, investors remain wary of potential government intervention.
• Geopolitical Tensions: Ongoing US-China tensions and global scrutiny of Chinese tech firms have kept risk premiums elevated.
• AI Boom Bypasses Tencent—For Now: While 2025 has seen an AI-driven rally for many tech stocks, Tencent has not benefited as much as peers like Alibaba. However, this may be changing as the company ramps up its AI investments.

Yet, as Ivan Su, a Morningstar analyst, notes, “I have no doubt that Tencent will return to historical levels. The market still is not factoring in how much AI will help the company’s advertising and gaming businesses, but I think those earnings revisions will eventually come through.”

Financial Performance: Broad-Based Growth Across Core Businesses

Tencent’s 2025 financial results have exceeded expectations, with revenue and profit growth outpacing many global rivals. In the first quarter of 2025, Tencent reported:

• Revenue: 180 billion yuan (up 13% year-on-year)
• Gross Profit: 100.5 billion yuan (up 20%)
• Non-IFRS Operating Profit: 69.3 billion yuan (up 18%)

This marks the tenth consecutive quarter where profit growth has outpaced revenue growth, highlighting the company’s operational efficiency and margin expansion. The company’s diversified revenue streams include:

• Value-Added Services (VAS): 92.1 billion yuan (up 17%), driven by domestic games (up 24%) and international games (up 22%)
• Marketing Services: 31.9 billion yuan (up 20%), with strong contributions from WeChat Video Accounts, Mini-Programs, and Search advertising
• Fintech and Business Services: 54.9 billion yuan (up 5%), led by consumer loans, wealth management, and cloud services

Gaming remains Tencent’s largest earnings contributor, with flagship titles like “Honor of Kings” and “CrossFire Mobile” reaching new highs. New releases such as “Delta Force” and the highly anticipated “Valorant Mobile” are expected to drive further growth into 2026.

Advertising and AI: The Next Growth Engine?

One of the most promising areas for Tencent is advertising, especially as AI tools are integrated into its platforms. In 2025, advertising revenue grew by 20% year-on-year, achieved without increasing ad load—meaning users are not seeing more ads, but the ads are more effective and better targeted thanks to AI.

Morningstar analysts have raised their advertising revenue forecasts for Tencent by an average of 6% over the next five years, citing the company’s “effective use of artificial intelligence.” The integration of generative AI for ad production and digital human solutions for live streaming has improved both engagement and monetization, especially on WeChat’s Video Accounts.

Tencent management believes that these AI projects will create long-term shareholder value, even if the returns may take a year or two to materialize.

Capital expenditure has surged—up 91% year-on-year in Q1 2025—as Tencent invests heavily in AI infrastructure and research. R&D spending also rose by 21%, reflecting the company’s commitment to staying at the forefront of technological innovation.

AI Strategy: “AI in All” and the Path to Monetization

Tencent’s “AI in All” strategy aims to embed artificial intelligence across its entire business ecosystem. This includes:

• Gaming: AI-powered assistants and teammates enhance user experience and engagement in popular titles.
• Advertising: AI-driven ad platforms improve targeting, creative production, and live streaming capabilities.
• Enterprise Services: AI and cloud solutions help clients boost efficiency and drive innovation.
• Consumer Apps: Native AI products like Yuanbao and ima, and new AI features in WeChat, QQ, Tencent Docs, and Tencent Meeting.

While these investments are capital-intensive, they are expected to yield high returns over time. As one Morningstar report notes, “Tencent is well-positioned to generate strong returns on its GPU investments. With multiple AI levers in place, the company has yet to fully realize the long-term return potential of these investments.”

Challenges: Regulatory Risks and Market Uncertainty

Despite the optimism, Tencent faces several challenges that could impact its valuation:

• Regulatory Environment: The specter of renewed government intervention in China’s tech sector remains a risk. While the crackdown has eased, policy shifts can be sudden and unpredictable.
• Geopolitical Tensions: US-China relations and global scrutiny of Chinese tech firms could affect Tencent’s international ambitions and investor sentiment.
• Competition: While Tencent is more insulated than some peers, competition from domestic rivals like Alibaba and Meituan, as well as global giants, is intensifying—especially in AI and cloud services.
• AI Monetization Timeline: Management has cautioned that it may take a year or two for AI investments to deliver meaningful returns, which could limit near-term margin expansion.

Nevertheless, Tencent’s diversified business model and strong balance sheet (with $13.6 billion in net cash) provide resilience against these headwinds.

Investor Sentiment: Bullish Outlook and Analyst Ratings

Investor sentiment toward Tencent has turned increasingly positive in 2025. The cost of hedging against declines in Tencent shares has dropped from its April peak, and the stock boasts 66 buy recommendations—the most in Asia. Analysts are generally optimistic, with consensus 12-month target prices suggesting a potential upside of 25-46% from current levels.

Morningstar’s fair value estimate for Tencent is HKD 800 (about $102 per share), implying a 30 times earnings multiple for 2025. With shares currently trading at just 22 times earnings, the stock is seen as undervalued. Other analysts, such as those at MarketBeat, rate Tencent as a “moderate buy” with a target price of $88, representing a potential 46% upside.

“It’s just a matter of time,” said a fund manager at Gam Investment Management, which has Tencent as the largest holding in its flagship fund. “The ubiquity of WeChat will make Tencent a long-term winner in e-commerce, and its stock valuations are reasonable on historical and peer comparisons.”

Gaming and Esports: A Global Powerhouse

Tencent is the world’s largest video game company by revenue and a dominant force in global esports. Its esports division, established in 2016, manages major tournaments and leagues, contributing significantly to Tencent Games’ revenues. In Q4 2024, international games revenue rose 15% year-on-year, while domestic games revenue increased 23%.

The upcoming launch of “Valorant Mobile” and the success of “Delta Force” are expected to drive further growth. According to Goldman Sachs, “Valorant Mobile” should help boost Tencent’s revenue from late 2025 through the first half of 2026.

Segment Spotlight: Tencent Music Entertainment Group

Tencent’s music streaming arm, Tencent Music Entertainment Group (TME), has also delivered standout results. In Q2 2025, TME reported:

• Revenue: CNY 8,442 million
• Net Income: CNY 2,409 million
• Share Price Surge: 56% increase over the last quarter

TME’s growth is driven by its “dual-engine” strategy—focusing on both content and platform innovation. The company has expanded its SVIP memberships and leveraged AI technology to enhance user engagement and platform efficiency. Over the past three years, TME shareholders have enjoyed a total return of 467%, far outpacing the broader US market.

Comparisons with Global Tech Peers

Despite its size and influence, Tencent remains undervalued compared to global tech giants. Its market cap is nearing $500 billion, making it the largest tech company in China and the 16th largest worldwide. Yet, its price-to-earnings ratio lags behind those of Amazon, Apple, Meta, and Sony.

This valuation gap is partly due to the unique risks associated with Chinese companies, but also reflects the market’s cautious approach to Tencent’s AI and international expansion strategies. As regulatory fears recede and AI investments begin to pay off, many analysts believe Tencent’s valuation will converge with its global peers.

Technical Outlook: Key Levels and Market Trends

Tencent’s stock price rebounded from HKD 258 in January to HKD 482 in October 2025, moving above key support levels and technical indicators. The outlook suggests that Tencent’s stock may remain steady in the coming months, with HKD 482 as a key level to watch for further upside.

Technical analysts point to the stock’s strong momentum and improving fundamentals as reasons for optimism. However, they caution that external shocks—such as renewed regulatory action or geopolitical tensions—could trigger volatility.

In Summary

• Tencent’s stock has rebounded strongly in 2025, adding over $150 billion in market value but still trades at a discount to global tech peers.
• Robust financial performance, driven by gaming, advertising, and fintech, has outpaced expectations, with profit growth exceeding revenue growth for ten consecutive quarters.
• AI investments are transforming Tencent’s core businesses, especially advertising and gaming, though meaningful returns may take time to materialize.
• Analysts remain bullish, with consensus target prices indicating 25-46% upside and 66 buy recommendations—the most in Asia.
• Risks remain, including regulatory uncertainty, geopolitical tensions, and the timeline for AI monetization, but Tencent’s diversified business model and strong balance sheet provide resilience.
• Tencent’s valuation gap with global peers may narrow as AI-driven growth accelerates and investor confidence returns.