Why Tencent Holdings Stock Triumphed Today

On a generally gloomy Thursday for the stock market, Tencent Holdings (OTC: TCEHY) was something of a standout. On the Chinese company's latest news, investors piled into its shares, leaving them with a more than 3% increase at market close. This compared very favorably to the S&P 500 index's 0.6% dip on the day.

A big bottom-line pop

Tencent reported its third-quarter results after market hours on Wednesday, revealing that it managed to grow revenue by 8% year over year in the period to over 167 billion yuan ($23.1 billion). International Financial Reporting Standards (IFRS) net income saw a more impressive leap, rising by 47% to 53.2 billion yuan ($7.4 billion).

The social media and gaming specialist essentially met the consensus analyst estimate for revenue. It beat on the bottom line, as those prognosticators following the stock were collectively modeling 52.9 billion yuan ($7.3 billion) for that line item.

Tencent's revenue growth was aided by a 14% rise in the take for its domestic gaming business, which brought in more than 37 billion yuan ($5.1 billion). This was particularly encouraging given that the unit posted only 9% growth the previous quarter and in the two frames before that, reported year-over-year declines. What helped greatly was the introduction of a popular new title, Black Myth: Wukong.

Large investments not yet bearing fruit

On a down note, Tencent said that its considerable investments into artificial intelligence (AI) have yet to pay off sufficiently. It is not yet producing meaningful revenue, and investors might have to wait several quarters for it to significantly boost earnings, too.

All in all, though, it was a good quarter for the company, particularly given the relative sluggishness of the domestic economy -- which has battered other business sectors. Slow development of the AI efforts might be a source of concern if they don't accelerate soon. Investors should keep an eye on this in the coming months.