Tencent Q4 Earnings Preview: Can AI and Strong Business Performance Drive Another Surge in Stock Price?

Tencent (00700.HK) is set to release its Q4 2024 earnings report on Wednesday, March 19. The market expects revenue to hit 168.435 billion yuan, up 8.53% YoY, and EPS to jump 62.21% to 4.553 yuan.

Since the start of the year, Tencent's stock has surged over 25% YTD, breaking above 500 HKD, making it one of the top performers in Hong Kong's tech sector. But can AI and solid fundamentals keep pushing the stock higher?

Gaming: Still the Cash Cow

Tencent's gaming business continues to shine. J.P. Morgan estimates that value-added services (VAS), including gaming, will generate 76.61 billion yuan in Q4, up 10.9% YoY, with gaming alone contributing 47.53 billion yuan (+16.2% YoY).

Top titles like Honor of Kings and Peacekeeper Elite remain dominant in iOS rankings, while newer games like Valorant and Dungeon & Fighter: Origins are adding fresh revenue streams.

What's more exciting is Tencent's AI integration in gaming — from AI-driven NPCs to dynamic content generation. Peacekeeper Elite, for example, is now using DeepSeek to enhance combat realism, potentially setting new industry standards and monetization opportunities.

Advertising: A Solid Growth Engine

Advertising is another bright spot. Q4 ad revenue is expected to grow 13.2% YoY to 33.74 billion yuan. Tencent's WeChat ecosystem — including mini-programs and video accounts — is becoming a powerful platform for advertisers.

AI is a major driver here too. Hunyuan, Tencent's AI model, helps optimize ad targeting and boost click-through rates, making Tencent's ad products more cost-effective and attractive to brands.

FinTech & Cloud: Steady, with AI Tailwinds

FinTech and enterprise services are expected to generate 55.84 billion yuan, up 2.7% YoY. While payment services face macro headwinds, Tencent Cloud is showing strong momentum, with SaaS revenue growing 40% — three times the market average.

AI is again at the center. Tencent's DeepSeek-R1 is now embedded in WeChat Search, enabling AI-generated content sharing — enhancing user engagement and potentially driving new revenue streams.

AI: The Next Big Catalyst

Tencent's aggressive AI push is grabbing attention. Its AI assistant "Tencent Yuanbao" has become one of China's fastest-growing AIGC apps, reportedly surpassing DeepSeek in downloads.

CEO Pony Ma has emphasized AI as a key lever for growth, especially in advertising, and committed to heavy investment in AI infrastructure.

Analysts are bullish:

Goldman Sachs: Sees Tencent as a top AI application player, thanks to its massive user base.
Citi: Believes DeepSeek's integration will boost both WeChat and Tencent Cloud revenue.
UBS & Macquarie: Highlight AI's role in improving user engagement and unlocking new monetization paths.

My Take: Strong Buy on AI Potential

Tencent's Q4 earnings will likely reaffirm its leadership in gaming, ads, and FinTech. But AI is the real growth story here — and I don't think that upside is fully priced in yet.

Despite a strong rally this year, I see more room to run, especially if Q4 beats expectations. With an average analyst target of 509 HKD and a high estimate of 676 HKD, Tencent looks like a strong buy for long-term investors betting on China's AI revolution. #tencent