(July 22): Tencent Holdings Ltd fell the most in over a year, dragging Chinese gaming stocks lower as investors grew concerned about its mobile gaming business and some funds rotated back into artificial intelligence (AI)-related names.

The company’s Hong Kong-listed shares sank 7.1%, the most since April 2025, as traders cited worries that its mobile gaming revenue could have declined in the June quarter. The sell-off dragged the Hang Seng Tech Index down 3%, while fellow game developers NetEase Inc and XD Inc also dropped more than 5%.

“Gaming stocks saw a sharp sell-off amid rumours of declining Tencent mobile revenue,” BNP Paribas’ sales desk wrote in a note to clients on Wednesday. The Shenzhen-based company is set to report second-quarter earnings on Aug 12.

The likely revenue drop could give investors an excuse to take profits after Tencent’s recent rally, said Steven Leung, an executive director at UOB Kay Hian. Some funds also appear to be rotating into AI-related stocks, he added.

Tencent reported weaker-than-expected domestic and international games revenue for the March quarter amid a challenging time for the global games industry. The consensus estimate expects it to report about 11% growth in overall gaming revenue for the June quarter, data compiled by Bloomberg showed.

Some analysts remain cautious. Bernstein estimates Tencent’s mobile gaming revenue fell 2.6% in the second quarter from a year earlier. More importantly, total billings from its three biggest titles — Honor of Kings, Peacekeeper Elite and PUBG Mobile — likely dropped 13% during the period, analysts led by Robin Zhu wrote in a note this week.

Adding to the pressure on Tencent, Hong Kong-listed stocks don’t benefit from support by China’s so-called national team, leaving them more vulnerable to outflows, according to Leonid Mironov, a portfolio manager at Gavekal Capital Ltd. After Tencent’s gains in recent weeks, investors were taking profits, he said.

“On a rotation day, everyone’s looking for reasons and whatever sounds negative works,” Mironov added. “Personally I don’t have gaming as a big driver for Tencent anymore, but then of course it’s still a part of the business.”

The sell-off on Wednesday extended Tencent’s retreat this year to more than 26%, erasing much of its rally in the first three weeks of July. Investors have rotated out of the technology giant amid concerns over its heavy AI investments and the uncertain timeline for launching agents across its WeChat ecosystem. Meanwhile, its other businesses — including advertising and mobile gaming — face pressure from China’s weak macroeconomic environment.

Uploaded by Tham Yek Lee