With the financial report approaching, how far is "cheap" Tencent from a new high?
Although Tencent's market value has surged by more than $150 billion this year, it has not yet regained its lost ground, and its stock price appears "cheap" compared to other global giants. Investors are betting on its imminent return to peak performance, focusing on Wednesday's financial report and the launch of the heavyweight game "Valorant Mobile." Analysts expect the company's revenue in the second quarter to grow by 11%, marking three consecutive quarters of double-digit growth. The GAM fund manager stated that Tencent's return to new highs is "just a matter of time."
As global tech stocks continue to hit new highs, investors are starting to turn their attention to Tencent, which has not yet fully recovered.
This year, Tencent has added over $150 billion in market value, but it is still 26% away from its historical peak. Compared to global tech peers like Meta and Sony, Tencent is still trading at a significant discount. Ahead of the earnings report set to be released on Wednesday, August 13, analysts have raised their earnings expectations for Tencent to a historical high, with blockbuster games like Aito carrying high market expectations.
Jian Shi Cortesi, a fund manager at GAM Asset Management, stated that given the popularity of WeChat and the "reasonable" stock valuation, it is "only a matter of time" before Tencent's stock price regains its former glory.
Morningstar analyst Ivan Su is equally optimistic: "I have no doubt that Tencent will return to historical levels." He believes the market has not fully considered the impact of AI on the company's advertising and gaming businesses, stating, "I think earnings expectations will ultimately be revised upward."
Valuation Advantage Emerges
Tencent's current valuation attractiveness is becoming apparent. According to Bloomberg data, the stock is trading at a forward price-to-earnings ratio of 17.6 times, below the five-year average of 20 times. In contrast, Meta and Sony are both around 22 times, while Nintendo is close to 40 times—these three companies all reached new stock price highs last week.
The market's average expectation for Tencent's 12-month forward earnings per share has climbed to a historical high. Analysts expect its earnings report to show an 11% revenue growth for the quarter ending in June, marking the third consecutive quarter of double-digit growth.
June Lui, a portfolio manager at Polen Capital, pointed out that the growth momentum in the advertising business is a key highlight, and Tencent's progress in AI will help drive the growth momentum of its video account services. She believes Tencent's diversified business portfolio makes it more defensive than its peers, allowing it to better cope with adverse factors such as tariffs and macroeconomic uncertainties.
Gaming Business as Growth Engine
The market is optimistic about the prospects of Tencent's gaming business. The highly anticipated Aito mobile game is set to launch next Tuesday, and Goldman Sachs expects this shooting game to drive Tencent's revenue growth from the second half of this year through the first half of 2026.
Additionally, Goldman Sachs analyst Ronald Keung wrote in a research report last week:
"Delta Force" is becoming a potential franchise-level evergreen game. Gaming remains a strong cash-generating industry with high visibility—especially at a time when Chinese internet trading platforms are generally facing profitability pressures.
Investor sentiment is also improving. The hedging costs for Tencent's stock have fallen from their peak in April, and analysts are generally bullish on this second-largest market cap stock in Asia, with 66 buy ratings being the highest in the region
