Brokers now expect Tencent's third-quarter adjusted operating profit to fall year on year because of AI costs, putting the November 18 results at the center of the investment case.
Tencent’s Hong Kong-listed shares closed at HK$393.8 on October 21, down 4.04% on the day and at their lowest level in close to a year, according to The Paper and Jiemian. The fall left the stock nearly 40% below the level of about HK$634 it reached early in 2026, when its market value was around HK$5.76 trillion. Its market value now stands at about HK$3.58 trillion, The Paper reported.
Both outlets set the slide against the rising cost of Tencent’s AI buildout and tighter liquidity in Hong Kong. Tencent’s own results show the strain: the company said it spent RMB52.8 billion on capital expenditure in the second quarter, and that heavy compute purchases pushed free cash flow below zero. Brokers quoted by both outlets expect adjusted operating profit to fall year on year in the third quarter, which Tencent will report on November 18.
What remains unclear is how much of the day’s move reflects Tencent specifically. The same session brought a broad sell-off in Hong Kong technology stocks and fresh reports that Nvidia may supply only a small share of the AI chips Chinese groups, including Tencent, have ordered.
AI spending turned Tencent’s cash flow negative in the second quarter
Tencent spent RMB52.8 billion on capital expenditure in the second quarter of 2026, up 176% year on year, and recorded negative free cash flow of RMB13.8 billion. Both figures come from the company’s second-quarter results release, which shows capex of RMB31.9 billion in the first quarter. The release attributed the outflow to large AI-related prepayments for computing infrastructure to support its Hy models, booked within operating cash flow, and said free cash flow would have been RMB37.6 billion excluding those compute prepayments.
The Paper and Jiemian both cited the 176% capex increase. Jiemian quoted a Haitong International note that forecast third-quarter revenue of RMB210.2 billion, up 9%, and adjusted operating profit of RMB68.8 billion, down 5%, mainly because of AI-related depreciation and product investment. Haitong cut its target price by 2% to HK$470 and kept an outperform rating.
The Paper cited UBS estimating that Tencent’s AI-related operating expenses would reach RMB16 billion in the third quarter, contributing to a 2% decline in adjusted operating profit to RMB71 billion. GF Securities expected RMB70 billion, down 4%. UBS also estimated that, excluding the strategic AI investment, underlying adjusted operating profit would still grow 13%.
The fall coincided with a sector-wide sell-off and chip supply doubts
Tencent was not alone. The Hang Seng Tech Index fell 1.26% on October 21, slipping below 4,000 to its lowest level since October 2024, according to a market wrap published by the 21st Century Business Herald. The same report said CATL dropped more than 11% after its results, and that large internet stocks gave up their morning gains.
The session also followed a Reuters report, summarized by TrendForce, that ByteDance, Alibaba and Tencent had ordered more than 3 million Nvidia RTX PRO 5500 cards worth over US$35 billion, and that Nvidia had warned partners they may receive only 5% to 10% of the volumes requested. EastFrontier covered the orders the same day. In New York, 24/7 Wall St. reported the KraneShares CSI China Internet ETF down 3% as the Reuters report circulated, but stopped short of naming it as the cause.
Neither The Paper nor Jiemian mentioned Nvidia in its account of Tencent’s decline. Jiemian pointed instead to weak liquidity in Hong Kong and lower risk appetite for technology stocks. The Paper quoted CICC analyst Liu Gang, who said Hong Kong liquidity had tightened markedly this year, with southbound net inflows from mainland investors of only HK$440 billion in the first nine months, against HK$1.4 trillion for all of 2025.
The November 18 results will test the profit forecasts
Tencent’s investor relations site lists its third-quarter results announcement for November 18. The numbers to watch are adjusted operating profit against the RMB68.8 billion to RMB71 billion range in broker forecasts, the size of AI-related operating expenses, and whether capex and compute prepayments keep free cash flow negative for a second quarter.
Chip supply is the other variable. If Nvidia delivers only a fraction of the RTX PRO 5500 orders, Tencent’s AI spending could slow for reasons outside its control, easing pressure on cash flow but limiting the computing capacity it is paying in advance to secure. Any comment from management on the order, or on whether its capex plans have changed, would show which effect dominates.