Goldman Sachs: Tencent (00700), NTES-S (09999), and Kuaishou-W (01024) are core mainland gaming and entertainment stocks.

Goldman Sachs Group, Inc. released a research report stating that in 2025, the stock prices of China's gaming and entertainment sector experienced a significant increase, with large and medium-sized stocks rising by 50 to 80% (compared to the Hang Seng H-Share Index ETF index of 26%), and continued strong performance at the beginning of 2026, with some stocks increasing by as much as 30% (compared to the related index of about 3-5%). The report believes that this increase is being primarily driven by valuation expansion and earnings growth. Looking ahead to 2026, the report will frame the key themes and points of contention in the sector, believing that future risk return continues to be attractive, but leaning more towards "alpha" drivers. The report prefers companies with potential for growth (such as the penetration of artificial intelligence applications and accelerated overseas expansion), and companies that still have compound growth/profit expansion potential amid intensified competition, especially in light of concerns brought by ByteDance. The report points out that (1) competition from ByteDance has become a core concern for investors in some growth tracks, but the report emphasizes significant differences in different tracks: short video/small game platforms are quickly emerging, while music streaming is an important point of contention. The report believes that Tencent Music Entertainment Group Sponsored ADR Class A (TME.US) is positioned differently in terms of ARPU and non-subscription revenue growth. (2) Accelerated expansion in overseas markets: Chinese game publishers and content platforms (represented by TENCENT (00700) and NTES-S (09999)) are speeding up their international expansion. The advantages of Chinese game manufacturers lie in their capital and talent intensity, outstanding technical capabilities, and efficient continuous content upgrades, factors that are driving their global market share to further increase from the current level of about 15%. (3) In terms of empowering and disrupting the application of artificial intelligence, Goldman Sachs Group, Inc. points out that AI is not only beginning to reduce production and labor costs, but also expanding the space to increase efficiency and income. Especially in the gaming and advertising tracks, AI is bringing about revenue increases and efficiency improvements. With the continuous upgrading of multimodal large models, more opportunities for application scenarios and enterprise adoption will continue to emerge; the report expects the total addressable market (TAM) for AI video generation tools to achieve a 10x expansion by 2028. Goldman Sachs Group, Inc. has selected core buy-in stocks, including Tencent, NetEase Inc Sponsored ADR, KUAISHOU-W (01024), Bilibili, Inc. Sponsored ADR Class Z (BILI.US), Tencent Music Entertainment Group Sponsored ADR Class A. The report believes that Tencent's core business (games + advertising) will continue to maintain annual growth in the low to mid-teens, mainly benefiting from the enduring strength of evergreen games, key product pipelines, and the support of the advertising ecosystem in monetization and artificial intelligence. The report continues to view Tencent as an important agent for the application of artificial intelligence and a core holding for investors. The report maintains a "buy" rating on Tencent, with a target price lowered from 770 Hong Kong dollars to 752 Hong Kong dollars.