Tencent rallies 5.66% as BofA says Hy3 AI model beats expectations

Tencent Holdings Ltd. shares surged 5.66% to HKD477.6 after BofA Securities said the official version of its Hunyuan Hy3 AI model exceeded expectations.

"Hy3's actual performance exceeded expectations, with its capabilities in programming, agents and design reaching domestic state-of-the-art standards despite a notably smaller parameter size," the BofA Securities analyst team said in a note. The broker maintained a Buy rating with a HKD780 price target, implying 63.3% upside from the current level.

Tencent released and open-sourced Hy3 on July 6 under the permissive Apache 2.0 license, removing regional restrictions that had limited adoption of earlier Chinese open-weight models in the European Union, the United Kingdom and South Korea. The model has 295 billion total parameters with 21 billion active per forward pass, using a mixture-of-experts architecture with 192 experts and a 256,000-token context window. Token pricing is 20% to 50% lower than the preview version, at 1 yuan per million input tokens and 4 yuan per million output tokens, putting it in a similar range to DeepSeek V4 Flash.

The stock's gain added roughly HKD170 billion to Tencent's market value in a single session. BofA expects Tencent to further expand the scale of its foundation models, with Hy4 expected to launch in the fourth quarter of 2026.

Hy3's hallucination rate dropped to 5.4% from 12.5% in the preview version, according to Tencent's internal evaluations, while commonsense error rates fell to 12.7% from 25.4%. In a blind human study of 270 experts across real-world workflows, Hy3 scored 2.67 out of 4 against Zhipu AI's GLM-5.1, which scored 2.51. The model trails GLM-5.2 on coding benchmarks but leads on agentic search and tool orchestration tasks, including an 84.2 score on BrowseComp and 91.0 on DeepSearchQA.

The Apache 2.0 license is a strategic shift for Tencent. Earlier Chinese open-weight models from competitors carried restrictions that barred commercial use in the EU, UK and South Korea, limiting enterprise adoption. Hy3's permissive licensing and competitive pricing position it as a viable alternative for organizations seeking frontier-adjacent capability without the infrastructure costs of larger models. At 295 billion total parameters, Hy3's FP8 footprint is under 300 gigabytes, less than half the memory required by larger rivals such as GLM-5.2.

The BofA upgrade suggests Tencent's AI monetization path is gaining credibility with institutional investors. The market will watch for Hy4's launch in Q4 2026 as the next catalyst for further upside.

This article is for informational purposes only and does not constitute investment advice.