This Company Is Doubling Its Artificial Intelligence (AI) Spending in 2026. Here's Why It's a Long-Term Winner.

At some point over the past year, the stock market went from cheering increases in spending for artificial intelligence (AI) development and infrastructure to punishing companies that spend more than analysts expected. But just because investor sentiment has changed, it doesn’t mean the underlying business strategy and fundamental return on capital spending expectations have. That can present great opportunities for long-term investors.

The most recent victim of the shift in investor behavior is Tencent Holdings (TCEHY 1.27%). Management announced plans to double its AI spending this year, and the market sold off shares on the announcement despite otherwise strong earnings results. For long-term investors, this could be a great buying opportunity.

Image source: Getty Images.

The big advantage in artificial intelligence

Investors have been bearish on Tencent recently amid fears that its apps and games could be challenged by AI chatbots and agentic applications. On top of that, its cloud computing division is growing more slowly than those of competitors like Alibaba. So, the company finds itself in a catch-22 when it comes to how its AI spending will affect its stock. If it spends more, investors will see it as a waste of money; if it spends less, investors will see it as giving up entirely.

But Tencent’s stepped-up investment in AI isn’t financially reckless in the slightest. It’s well-positioned to generate strong returns on its AI development by enhancing ad targeting, content recommendations, and engagement within the WeChat (Weixin) ecosystem. AI could help generate content and assist developers for its gaming business as well, enabling more engaging games.

Tencent is in a similar position to Meta Platforms (META 3.85%) in the U.S., which has effectively used its AI developments to improve engagement and monetization of its platforms. Yet the increase in spending that Meta announced in January sent its share price down as well.

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OTC: TCEHY

Tencent

Today’s Change

(-1.27%) $-0.80

Current Price

$61.94

Key Data Points

Market Cap

$567B

Day’s Range

$61.64 - $62.68

52wk Range

$52.30 - $87.68

Volume

2.8M

Avg Vol

3.4M

Gross Margin

54.91%

Dividend Yield

0.91%

Indeed, Tencent has a massive cash-generative business from gaming, subscriptions, and advertising. Its value-added services (games and music/video subscriptions) revenue climbed 16% in 2025. Marketing services climbed 19%. Overall, free cash flow climbed 18% last year, and net cash on its balance sheet increased 40% to RMB107.1 billion.

Management said that “increased profits from our existing businesses should more than cover incremental investments in these New AI Products” in 2026. That may mean management expects net income to increase this year, but the increased spending will still weigh on its overall profit margin. That also echoes comments from Meta’s management earlier this year.

The margin effect of stepped-up AI investment is evident in its fourth-quarter results, when it spent RMB7 billion on its large language model, HY, development, and AI chatbot, Yuanbao. As a result, adjusted EBITDA margin fell sequentially.

But given the opportunities to monetize the investments in AI products and services through its wide-reaching ecosystem of apps and its cloud computing business, Tencent is making a smart strategic decision to step up its spending. With the stock trading for just 17 times earnings estimates, despite double-digit earnings growth expectations, it looks like a great value right now.