HSBC Research reported that Tencent (00700.HK) expects margin expansion to continue in the medium to short term, while maintaining investment in technology and fending off macro setbacks, particularly in advertising, with a variety of levers. The bank maintains a “buy” rating on Tencent with a target price of $475, looking at Tencent's favorable revenue mix in the high-margin area, continued cost control and undervaluation, and attractive total shareholder returns.

The HSBC study noted that while the cost-optimisation benefits of exiting underperforming businesses or merging overlapping teams have been broadly realised, Tencent believes that a shift in the revenue mix to a high margin segment and continued cost control could pave the way for sustainable profit growth in the medium to short term.

In addition, the report noted that Tencent's capital expenditure accounted for 9% of revenue this year, of which 2% was for non-operational purposes such as office buildings and the rest for chips and data centers; the primary task was to train hybrid base models. But the actual cost depends on the supply of chips in the United States and in the country.