Tencent Stock Gets HK$650 Target on New 295B Parameter AI Model

Morgan Stanley reiterated its “Overweight” rating on Tencent Holdings with a HK$650 price target after the company unveiled its 295-billion parameter Hy3 Preview AI model, a significant upgrade aimed at closing the gap with US rivals and boosting profitability across its vast product lineup.

"Hy3 Preview's enhancements in code generation and agentic tasks are notable," Morgan Stanley's analysts wrote in a note on April 25. They highlighted that a 40 percent increase in inference efficiency and lower costs provide "the best price-performance ratio."

The new model, built on a Mixture-of-Experts (MoE) architecture, features a 256K context window and shows a SWE-Bench Verified score of 74.4 percent, up from 53 percent for its predecessor. Tencent has already integrated the model into its core products, including Yuanbao, QQ, and its suite of WorkBuddy tools.

The release reinforces Tencent's strategy of embedding AI into existing revenue engines, a key advantage over standalone model developers. With shares trading around HK$505 ($64.35), the HK$650 target implies a 28.7 percent upside, as the firm looks to convert AI capabilities into shareholder value within its sprawling social and gaming ecosystem.

The Hy3 launch comes as competition in China's AI sector intensifies. Competitors like DeepSeek, which recently launched its V4 series, along with models from Alibaba and ByteDance, are all vying for dominance. Morningstar analyst Ivan Su noted that while DeepSeek's models are competent, Tencent's strength lies in its "integrated ecosystem that generates vast amounts of proprietary behavioral data," serving as a built-in testing ground for turning AI into profit.

Tencent's approach focuses on practical application over benchmark supremacy alone. The model is available on Tencent Cloud with competitive API pricing, including a personal version for as low as 28 yuan per month. This strategy aims to drive adoption and gather feedback to refine the model, ultimately enhancing user engagement and creating new revenue streams within its existing platforms, from advertising to mini-games.

The bullish view from Morgan Stanley is shared by others on the Street. UOB Kay Hian analyst Julia Pan also maintains a "Buy" rating with a HK$728.00 price target. The consensus rating for Tencent is a "Strong Buy" with an average price target of $91.61, reflecting broad confidence in the company's ability to leverage its scale and data to lead in the AI era.

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