Is Tencent a Good Deal After 56.5% Rally and New AI Announcements in 2025?

• Wondering if Tencent Holdings is a bargain right now? You are not alone. The company’s current share price has been a hot topic for anyone looking for strong tech investments in Asia.
• After a stellar year so far, Tencent's stock is up 56.5% year-to-date and has surged 62.3% over the past 12 months. This points to renewed investor confidence and possibly changing risk perceptions.
• Tencent has recently grabbed headlines with moves into international gaming and new AI product announcements. These developments have fueled excitement about its future prospects, and such strategic initiatives are widely seen as key drivers behind the stock’s recent momentum.
• On a value score basis, Tencent checks 2 out of 6 boxes for being undervalued (see details). Traditional models may not tell the whole story. Let’s break down the typical valuation approaches and, at the end, discuss a fresh angle that could change how you look at Tencent’s value for good.

Tencent Holdings scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Tencent Holdings Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and discounting them back to today's value, using the time value of money. This method helps investors determine what Tencent Holdings may really be worth, based on what it is expected to earn in the years ahead.

For Tencent Holdings, the latest reported Free Cash Flow (FCF) stands at approximately CN¥201.4 billion. Analysts have estimated that FCF will continue to grow, reaching about CN¥252.2 billion in 2026, CN¥280.3 billion in 2027, and up to CN¥321.7 billion by 2028. Beyond these years, projections are extrapolated by Simply Wall St, with 2035 FCF estimated at roughly CN¥474.6 billion. All figures indicate substantial potential for long-term cash generation in the business.

Applying the DCF model, the estimated intrinsic value is HK$757.26 per share. This result implies that Tencent's current stock price is trading at a 14.0% discount to its estimated fair value, suggesting the stock is undervalued at today’s price.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Tencent Holdings is undervalued by 14.0%. Track this in your watchlist or portfolio, or discover 853 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Tencent Holdings.

Approach 2: Tencent Holdings Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric for profitable companies like Tencent Holdings. This measure helps investors understand how much they are paying for each dollar of the company’s earnings, making it especially useful when evaluating established businesses with consistent profits.

What constitutes a “normal” or “fair” PE ratio depends on several factors. The most important are an investor's expectations of the company’s future earnings growth and the risks associated with that growth. Companies with higher anticipated growth and lower risk typically command higher PE ratios, while slower-growing or riskier companies attract lower ones.

Tencent currently trades at a PE ratio of 25.9x. This is above the Interactive Media and Services industry average of 21.6x and the peer average of 23.8x. However, Simply Wall St’s proprietary “Fair Ratio” considers not just industry benchmarks, but also Tencent’s specific earnings growth, risk profile, profit margins, and market capitalization. For Tencent, the Fair Ratio is calculated at 34.8x, significantly higher than both the industry and peer averages.

The benefit of the Fair Ratio is its holistic approach. It looks beyond simple comparisons and paints a more accurate valuation picture by weighing company-specific factors. In this case, Tencent’s actual PE ratio of 25.9x is well below the Fair Ratio, indicating that the stock may be undervalued on this basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1403 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Tencent Holdings Narrative

Earlier we mentioned there is an even better way to understand valuation, so let us introduce you to Narratives. In simple terms, a Narrative is your own story or perspective about a company, expressed through your unique outlook on its future revenue, earnings, margins, and ultimately, what you believe its fair value should be.

Rather than just relying on numbers alone, Narratives connect the company’s past and present to how it operates, the challenges and opportunities you see ahead, and to a clear financial forecast, ending in a specific fair value that you can compare to the current share price.

Narratives are available on the Simply Wall St Community page and are used by millions of investors worldwide. They are an accessible and intuitive tool that helps you decide when to buy or sell, because you can directly compare your fair value to the live share price.

The beauty of Narratives is that they update automatically when new facts, earnings reports, or news are released, so your thesis always reflects the latest information. For example, one Tencent Holdings Narrative currently estimates a fair value of HK$813.65 per share based on strong AI-driven growth, while another sees just HK$508.40 due to tighter margins and regulatory risk. This illustrates how different perspectives translate into different valuation outcomes.

For Tencent Holdings, we will make it really easy for you with previews of two leading Tencent Holdings Narratives:

🐂 Tencent Holdings Bull Case

Fair Value Estimate: HK$813.65

The current share price is approximately 20% below this fair value.

Projected Revenue Growth: 15%

• Growth is driven by innovations in AI, cloud, SaaS, and digital financial services as Tencent deepens its ecosystem and global partnerships.
• Major advances in advertising, gaming, and productivity platforms are increasing high-margin revenue streams and operational efficiency.
• Risks such as U.S. sanctions and regulatory changes in China are noted, but are expected to have limited impact relative to Tencent's diversified business model and strong track record managing challenges.

🐻 Tencent Holdings Bear Case

Fair Value Estimate: HK$508.40

The current share price is approximately 28% above this fair value.

Projected Revenue Growth: 12%

• While gaming, cloud, AI, and fintech continue to be core growth drivers, regulatory scrutiny in China and abroad poses significant challenges for sustained profitability.
• Tencent faces intense competition from both domestic and global peers, rising compliance costs for data security, and risks related to economic fluctuation and market saturation in core markets.
• Dependence on gaming revenue and ambitious innovation bets like the metaverse add earnings volatility and uncertainty about realizing projected growth.

Do you think there's more to the story for Tencent Holdings? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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