Has Tencent Holdings (SEHK:700) Fallen Far Enough Despite AI Spending?

Tencent Holdings stock has fallen sharply this year, yet on the latest valuation checks it still screens as cheap versus its fundamentals. This raises the question of whether recent weakness is overdone or a sign that lower expectations are settling in.

• Over the past 3 years, Tencent Holdings has delivered a total shareholder return of about 39%, which suggests that the longer term holders have still come out ahead despite the more recent share price pressure.
• Heavy investment in AI across Tencent Cloud and related products can support future earnings power, while higher ongoing spending and slower profit growth remain a clear risk to how much investors are willing to pay for that potential.
• Tencent Holdings is currently flagged as undervalued in 6 of 6 valuation checks. This means the broader set of metrics leans toward the stock trading below what those fundamentals might justify.

The issue now is whether Tencent Holdings' current share price already reflects these AI driven risks and opportunities or if there is still a meaningful gap to what the fundamentals support.

Tencent Holdings delivered -24.8% returns over the last year. See how this stacks up to the rest of the Interactive Media and Services industry.

Is Tencent Holdings Still Cheap on Earnings?

P/E is a straightforward check here because Tencent Holdings is solidly profitable and widely followed on earnings. The stock currently trades at about 14.4x earnings, which is just under both the interactive media and services sector average of roughly 18.8x and the peer group average of 14.7x.

The tailored fair P/E multiple for Tencent Holdings is 17.8x, which reflects its mix of growth, margins, size and risk. That level suggests the current 14.4x is meaningfully lower than what this framework considers reasonable. Despite the recent focus on heavier AI investment and the Q2 profit miss in 2026, the market is still pricing Tencent Holdings below this earnings-based benchmark.

On this P/E check, Tencent Holdings stock appears undervalued relative to what its earnings profile would typically command.

See what the numbers say about this price — find out in our valuation breakdown.

The Tencent Holdings Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where this Tencent Holdings valuation puzzle leaves off. They explain the growth, margin and earnings paths that would need to occur for Tencent Holdings' stock to be worth materially more or materially less than today’s price. Instead of presenting a single multiple or model outcome, they outline the assumptions behind each fair value so you can compare those with actual results over time on the Community page.

Community views on Tencent Holdings sit far apart, with one side seeing meaningful upside while the other questions whether the stock already prices in too much AI optimism.

Bull case: 36% undervalued

"Rapid adoption and integration of AI across Tencent's core business lines, including marketing services, gaming, content, and fintech, are driving higher efficiency, improved product offerings, and new monetization opportunities..."

Read the full Bull Case to see why Tencent Holdings could be undervalued

Bear case: 19% overvalued

"Tencent is currently in a 'AI = capex + opex expansion phase' NOT in 'AI = cost reduction phase'..."

Read the full Bear Case to see why Tencent Holdings could be overvalued

Do you think there's more to the story for Tencent Holdings? Head over to our Community to see what others are saying!

The Bottom Line

Tencent Holdings currently screens as undervalued on earnings-based multiples, even after a period of share price pressure. The key issue is whether the market is correctly discounting the heavier AI related spending and execution risk, or is being too cautious about the long-term earnings profile. For investors, the central question is whether Tencent Holdings can turn its AI investment into durable profit growth that eventually supports a higher P/E, rather than leaving the stock on a low multiple for longer.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com