Tencent AI Spending Under Scrutiny After Magnificent 7 Rout

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Tencent Holdings Ltd.'s spending plans will draw investor scrutiny as enthusiasm for lavish artificial-intelligence outlays cools. Last month, the Magnificent Seven lost $797 billion in a day after Google parent Alphabet Inc. raised capital expenditure plans while its cash flow turned negative for the first time since going public. Tencent recently raised $4.7 billion from the sale of long-dated dollar and yuan bonds in its largest bond offering since 2020 to finance the development of its AI products and services. Consensus earnings estimates in China's tech sector will remain under sustained pressure in the second half, weighed down by price wars and oversupply including in AI, even as the AI performance gap with the US is narrowing, according to Bloomberg Intelligence. Tencent's earnings growth likely fell to its lowest since 2023, slowed by rising AI investment costs including agentic token expenses, and the forthcoming AI agent for its WeChat platform will remain in focus during management's earnings call while no significant external sales from AI are expected this year.

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