The concerns US investors have over the sustainability of hyperscalers’ artificial intelligence (AI) spending has crossed the Pacific, to not only weigh on Naspers subsidiary Tencent, but also on the JSE-listed company.
These worries are reflected in the undervaluation of stock, with Tencent, Naspers and Naspers’s international arm, Prosus, all down this year so far.
JSE-listed Naspers holds a more than 55% stake in Prosus, which in turn owns a 24% shareholding in Tencent, an indirect stake the group has held since Naspers invested in the Chinese tech giant more than two decades ago.
So far this year, Tencent stock is 18.38% down and – taking a five-year view – has declined 18.32% in dollar terms.
Peter Takaendesa, chief investment officer at Mergence Investment Managers, says Tencent is now trading at the low end of its valuation range, even though its balance sheet is in a net cash position and it continues to buy back its own shares.
Investing.com has Tencent listed as a “strong buy” based on the consensus of 45 analysts, with one voting sell and two seeing it as a hold. Upside potential is anywhere between 10% and 43%.
This comes as JP Morgan, towards the end of last year, noted that the financial strength of the AI megacaps’ balance sheets is arguably the biggest reason to downplay comparisons with the dotcom bubble.
“Unlike the flimsy nature of corporate balance sheets 25 years ago, Amazon, Apple, Alphabet, Meta, Microsoft and NVIDIA are today sat on a cash pile to the tune of $450 billion,” the investment company says in its 2026 investment outlook.
Because tightening credit conditions have often been a major trigger for prior bubbles to burst, JP Morgan says today’s tech titans are in much better shape – even so, “whether end demand can accelerate fast enough to generate a reasonable return on investment right across the value chain is ultimately the million/billion/trillion-dollar question”.
Yet, JP Morgan concludes that “the earnings of the tech giants have been incredibly impressive, but the outlook for future AI demand remains highly uncertain and, in turn, it is highly uncertain whether high expectations will be fulfilled”.
Christiaan Bothma, an investment analyst at Sanlam Private Wealth, says there “is understandable market concern about Tencent’s increased investment in AI and the limited visibility on monetisation”.
Takaendesa adds that uncertainty over the level of AI spending drove profit-taking towards the end of last year – with Naspers and Prosus not immune. Naspers shares are trading at a 35%-45% discount to net asset value, he adds.
Naspers is down 20% since the start of the year, while Prosus has dropped 23.86% in 2026. Over a five-year view, Naspers is up 16% and Prosus down 5.15% in dollars on the JSE.
Naspers and Prosus expect more than $7.3 billion – R126.44 billion – in revenue combined for the full year to March, according to the companies’ interim results presentation released towards the end of November 2025 – an increase of around 1.4% on the top line year-on-year.
In China, Tencent reported revenue 15% up year-on-year, with an operating profit gain of 18% over the same period.
Still murky
Bothma says it is far from clear that AI will fully disintermediate platform businesses like Tencent – it may instead reinforce their advantages. “If AI is embedded into existing digital behaviour, businesses with the strongest user ecosystems are likely to retain an edge.”
This, Bothma notes, is because Tencent’s position differs fundamentally from the hyperscalers racing to build scale. The company already has the balance sheet, engineering depth, installed user base and valuable proprietary data to integrate AI into environments where its users already spend time – and does not need to dominate every layer of AI to do so.
Unlike many businesses exposed to China’s technology adoption, Bothma says, Tencent is not dependent on winning a hardware race or maintaining manufacturing leadership. Its position is rooted in ecosystem advantages that have proved durable over time.
Over the past decade, China’s technology sector has undergone a significant transformation – once regarded primarily as a low-cost imitator of Western innovation, it has evolved into a globally competitive and increasingly self-reliant ecosystem, Bothma adds.
That ecosystem begins with WeChat, which remains deeply embedded in daily life in China. This is because messaging, payments, social communication, content discovery, services and mini-programs are all housed within a single platform, says Bothma.
As new technologies emerge, the company already has a platform through which they can be introduced to users and businesses, he notes.
Under the hood
Since listing in 2003, Tencent has delivered total returns of 35% per annum in US dollars, which is a sharp contrast to the broader Chinese market, says Bothma.
Equity research analyst Kenio Fontes, writing for Seeking Alpha, points out that Tencent’s costs have been growing slower than revenue, with gross profit and operating profit gaining at close to 20% year-on-year on revenue gaining around 15% per annum. “That’s because Tencent is also investing in efficiency, AI, robotics, and of course, improving its revenue mix.”
Takaendesa says Tencent is growing core profit at three times China’s gross domestic product growth, with AI-driven efficiencies in existing consumer products and new revenue streams over the medium to longer term.
“We believe Tencent is very well positioned to leverage its 1.4 billion users to quickly launch new AI products at scale, while also leveraging AI tools to reduce operating cost and sharpen revenue targeting in existing core products, such as online gaming and advertising. Tencent is likely to accelerate launches of more AI products that integrate with WeChat later this year,” says Takaendesa.
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