Tencent Q1 2026 earnings preview: AI costs, gaming and ad revenue outlook

When will Tencent (700.HK) report results?

Tencent Holdings will announce its first-quarter (Q1) 2026 results after Hong Kong markets close on Wednesday, 13 May 2026.

Q4 2025 recap: AI investment pays off, but costs are set to surge

Tencent closed Q4 2025 with revenue up 13% year-on-year (YoY) to RMB 194.4 billion, marginally ahead of the analyst consensus. For the full year, group revenue reached RMB 751.8 billion (+14% YoY), with non-IFRS net profit attributable to equity holders rising 17% to RMB 259.6 billion. Gross margin expanded by more than 3 percentage points YoY to 56%, driven by a favourable mix shift towards internally developed games and AI-driven advertising.

Gaming remained the primary growth engine in Q4. Domestic games revenue rose 15% YoY to RMB 38.2 billion, with Delta Force sustaining a top-three industry ranking, while international games grew 32% YoY to RMB 21.1 billion, surpassing USD 10 billion in annual revenue for the first time. Marketing services revenue advanced 17% YoY to RMB 41.1 billion, outpacing China's 14% industry growth rate, as AI-powered targeting and the AIM+ automated campaign solution delivered measurable improvements in advertiser returns. Tencent Cloud reached RMB 5 billion in adjusted operating profit in 2025 — a marked turnaround from prior-year losses following its strategic restructuring away from low-margin contracts.

The dominant concern to emerge from the results, however, was the cost of Tencent's next phase of AI development. President Martin Lau disclosed that the company spent RMB 18 billion on its HunYuan foundation model and Yuanbao AI assistant in 2025 and would more than double that figure to in excess of RMB 36 billion in 2026, with share buybacks — running at an HKD 80 billion pace in 2025 — scaled back to fund it. Tencent shares declined on the announcement, with investors unsettled by the magnitude of the capital commitment and Lau's acknowledgement that AI monetisation in China — where consumer subscription uptake and enterprise adoption of high-value tools remain nascent — would take time to gain traction.

Q1 2026 preview: advertising momentum races against rising AI costs

Analysts expect Tencent's revenue growth to moderate from 12.7% in Q4 2025 to approximately 10.5% YoY in Q1 2026. A deceleration in Value-added Services (VAS) — which encompasses gaming and social networks — is expected to be partially offset by an acceleration in Fintech and Business Services, which includes payments and cloud. Marketing Services is forecast to serve as the principal growth driver, as AI-enhanced targeting capabilities continue to improve advertising returns.

Non-IFRS net profit attributable to equity holders is projected to grow at a slower pace than revenue, as the operating margin contracts by 2.1 percentage points to 36.4%. Research and development (R&D) and marketing expenses are projected to grow 55% and 91% YoY respectively, reflecting the AI investment step-up that management flagged on the Q4 earnings call.

Source: LSEG

Five things to watch on Tencent's Q1 2026 earnings call

1. How big is the AI bill? Management guided to more than doubling AI product investment to in excess of RMB 36 billion in 2026, with share buybacks scaled back to fund it. Investors will be scrutinising whether actual R&D and marketing spend tracks above consensus, and whether management revises its capital expenditure (capex) budget upward on the call.
2. Marketing services: can early Q1 momentum be validated? On the Q4 call, management shared early signals of marketing services growth running ahead of Q4's pace in Q1. The key question is how much of that outperformance reflects structural, AI-driven gains in ad targeting versus a temporary rebound in e-commerce advertising budgets.
3. Gaming pipeline and VAS momentum: VAS growth is forecast to decelerate sharply from Q4's pace as comparatives become more demanding. Delta Force exceeding 50 million peak daily active users (DAU) in February provides an encouraging read-across for domestic games. Internationally, investors will be seeking confirmation that core evergreen franchises — including Supercell titles and PUBG Mobile — can sustain momentum once the Q4 tailwind from Wuthering Waves fades.
4. HunYuan 3.0 and agentic AI: Tencent's large language model (LLM) HunYuan launched version 3.0 as a preview release in late April. Following the OpenClaw wave, Tencent also introduced QClaw — its own autonomous AI agent operable directly from WeChat and QQ — in mid-March. Investors will be looking for early feedback on HunYuan 3.0's market reception, Yuanbao engagement metrics, and the commercial traction of its agent products.
5. Tencent Cloud: Tencent Cloud generated RMB 5 billion in adjusted operating profit in 2025 despite constrained graphics processing unit (GPU) availability. With infrastructure capacity scaling up through 2026, Q1 2026 will provide the first meaningful read on whether the revenue acceleration that management guided for is materialising.

Analyst 12-month target price and technical analysis on Tencent

Analyst sentiment is broadly constructive: 43 of the 47 analysts covering Tencent on LSEG assign a 'buy' or 'strong buy' rating to the stock. The consensus 12-month price target stands at HKD 718.0, representing approximately 54.6% upside relative to the closing price on 11 May 2026.

From a technical perspective, Tencent's share price has been in a downtrend since reaching a local high in October 2025. Current technical momentum is weak, with the relative strength index (RSI) ranging in the 30s. The short- to medium-term outlook remains bearish unless the share price reclaims the 200-day moving average (MA), which stands at approximately HKD 580.5.

A positive earnings surprise could catalyse a share price recovery, though upside is likely to be capped by resistance at the 20-day MA level of HKD 486.8. Conversely, a disappointing result may drive the share price towards the April 2025 low of HKD 419.

Tencent daily price chart

The figures stated in this article are as of 12 May 2026 unless otherwise stated. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.