Tencent, Alibaba All-In AI: MS & GS Remain Bullish, Would You Buy the Dip?
This week, the two giants of China’s tech sector, $TENCENT(00700)$ and $BABA-W(09988)$ , both saw their shares tumble following their latest earnings releases. Prior to the reports, Tencent had surged 7% as a leading "OpenClaw" concept stock.
However, just two days later, that momentum evaporated as market anxieties over heavy AI spending took hold. Is this post-earnings dip a "buying the valley" opportunity? Let’s dive into the latest analyst insights to find out.
Institutional Views: AI Investment Accelerating, Near-Term Profits Under Pressure
$Alibaba(BABA)$: Morgan Stanley Maintains Overweight, Price Target US$180
Morgan Stanley's report is a mix of highlights and controversy. Cloud is the standout — revenue grew 36% YoY, with external revenue accelerating to 35%, and AI-related revenue delivering triple-digit growth for 10 consecutive quarters, validating Alibaba Cloud's competitiveness in AI infrastructure.
However, the profit miss disappointed markets. Adjusted EBITA came in at only RMB 23.4bn, a full 21% below Morgan Stanley's estimate.
The two main drags were: Quick Commerce (Ele.me and instant retail) with continued widening losses, and the "All Others" segment posting a RMB 9.8bn loss that deteriorated further quarter-on-quarter.
Morgan Stanley's response was "unchanged thesis" — core investment case intact — but near-term EPS estimates were revised lower, making the overall tone a modest negative revision.
$TENCENT(00700)$: Goldman Sachs Maintains Buy, Price Target Cut from HK$752 to HK$700
Goldman Sachs described Tencent's results as a "tale of two parts": on the positive side, games (+21% YoY) and advertising (+17% YoY) growth remained strong, with new titles like Delta Force beating expectations; on the negative side, management explicitly announced entry into an accelerated AI new-product investment phase, with FY26 AI new-product spending more than doubling versus FY25 to over RMB 18bn, pulling the FY26E profit growth estimate down from +10% to +7% — well below the prior street consensus of +13%.
Goldman Sachs views this profit reset as a "proactive repositioning" rather than a fundamental deterioration, drawing parallels to how Tencent turned Tencent Cloud from loss-making to profitable (FY25 adjusted operating profit of RMB 2bn). AI new-product investments could follow a similar path from a spending phase toward monetization.
Is It Time to Buy the Dip? How Much Further Could These Stocks Fall?
Arguments for buying the dip:
-
Both firms maintain Buy ratings with 20%+ upside to their price targets
-
AI business momentum is accelerating — no fundamental reversal in sight
-
Tencent trades at 16X FY26E P/E, below its 18X start-of-year level; Goldman sees valuation repair potential relative to Meta (22X) / Google (29X)
Reasons for caution:
-
Both companies are ramping AI capex — near-term profit pressure is a shared consensus view; Goldman expects Tencent's earnings growth to remain subdued through FY26–27
-
Alibaba's large profit miss has shaken market confidence in its earnings visibility; Alibaba's All Others segment (covering Ele.me, digital media and entertainment, etc.) continues to bleed cash with no clear timeline to breakeven
-
Tencent management signaled that buyback intensity in 2025 will be lower than in 2024, reducing a key floor for the share price
Would you buy the dip of two giants?
How much further would they drop as market narratives hate overcapex?
How do you view Alibaba and Tencent earnings?
Leave your comments to win tiger coins!
For SG users only, Welcome to open a CBA today and enjoy access to a trading limit of up to SGD 20,000 with unlimited trading on SG, HK, and US stocks, as well as ETFs.
Find out more here.
Complete your first Cash Boost Account trade with a trade amount of ≥ SGD1000* to get SGD 688 stock vouchers*! The trade can be executed using any payment type available under the Cash Boost Account: Cash, CPF, SRS, or CDP.
Other helpful links:
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
A Definitive "Buy the Dip" on Both Giants
I would absolutely buy the dip on these two titans. The bullish stance from Morgan Stanley and Goldman Sachs is grounded in a valuation reality that the market is currently ignoring: Tencent and Alibaba are trading at forward P/Es of approximately 14x and 9x, respectively. These are multiples usually reserved for low-growth utilities, not global tech leaders. Their massive buyback programs—Tencent’s HK$100 billion annual commitment and Alibaba’s aggressive share cancellation—act as a "synthetic floor." You are essentially getting their AI optionality for free at these price levels.
Morgan Stanley's response was "unchanged thesis" — core investment case intact — but near-term EPS estimates were revised lower, making the overall tone a modest negative revision.
The recent earnings reports from both companies should be viewed as "transitional strength." Tencent’s core gaming and advertising segments remain cash cows, with AI already quietly improving ad targeting and gross margins. Alibaba, meanwhile, is successfully stabilizing its Taobao and Tmall Group (TTG) market share while its Cloud and International segments (AIDC) continue to post double-digit growth. These are not reports of companies in decline; they are reports of companies retooling their engines while still generating billions in profit.
The AI spend isn't a "black hole"—it is the infrastructure required to defend their moats in the next decade of cloud computing and digital services.
How much further can they drop? Very little. While the market narrative currently "hates" over-capex, this sentiment usually shifts the moment AI contributions show up in the margins. We saw this with Meta in 2022; the pivot from "reckless spending" to "year of efficiency" happened fast. For Tencent and Alibaba, the downside is capped by their fortress balance sheets and immense free cash flow. Even if sentiment remains sour, I expect a maximum additional slide of 5% to 7% before the sheer yield from buybacks and dividends makes them impossible for institutional value funds to ignore.
That said, near-term risks are real. Both companies are ramping up investments, which will pressure earnings growth, and Alibaba’s weaker profitability plus losses in its “All Others” segment are a concern. Tencent’s lower buybacks also reduce downside support, so I expect volatility to continue as the market digests overcapex fears.
From a valuation standpoint, the dip is becoming more attractive. Tencent around 16x forward earnings and Alibaba’s long-term AI and cloud momentum look compelling. I see this as a gradual accumulation opportunity rather than a bottom call, and I’d scale in slowly if prices weaken further.
@TigerClub @TigerStars @Tiger_comments @Tiger_SG