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Game On: Tencent Among Top 3 Big-Tech Picks

Tencent continues to make major waves and won plenty of praise for its central role in China's esports moment.
Tencent esports
With expertise in investment evaluation, Muslim Farooque is a respected voice in stock analytics, featured on InvestorPlace, GuruFocus, BarCharts, and Tipranks.
With expertise in investment evaluation, Muslim Farooque is a respected voice in stock analytics, featured on InvestorPlace, GuruFocus, BarCharts, and Tipranks.

On the Agenda

  • Apple AAPL : Despite broader market fluctuations, a services sector with a 70% gross margin, and record high revenue of $21.2 billion.
  • Meta Platforms META : A 145% rebound in stock price this year, a bold AI-driven pivot, a whopping $7.1 billion to cloud infrastructure in Q1 alone.
  • Tencent Holdings TCEHY :  Hunyuan AI model boasts 100 billion parameters.

The fervor around tech stocks this year is undeniable. However, 2023 has been throwing in curveballs of late, weighing down investor sentiment. The S&P 500 was up tantalizingly close to its peak and then took a dip. The unrest in the Middle East has added further fuel to the fire. But historical patterns reveal that bear markets typically pave the way for subsequent market expansion. 

Apple (AAPL)

Apple is usually a no-brainer tech stock pick for any savvy long-term investor. Its trajectory, marked by robust sales growth courtesy of the iPhone and a suite of products, from Macs to the Apple Watch, has pushed its stock price northwards. The stock is up more than 38% year-to-date, outperforming the S&P 500’s 14% gain. It has lost its momentum of late in line with the broader market, which presents an excellent opportunity to load up on the stock.

The real game-changer for the company has been its burgeoning services business. This segment, encompassing iCloud, digital content, Apple Pay, and more, hit a record high last quarter, raking in $21.2 billion. More impressive is the profit Apple rakes in from these services, boasting a hefty 70% gross margin, dwarfing the 35% for products.

Moreover, Apple has been masterfully diversifying with the release of The Vision Pro is Apple’s maiden VR/AR headset. Furthermore, a strategic pivot to India reduces its China dependency, effectively sidestepping potential supply chain hiccups.

Meta Platforms (META)

Meta Platforms’ comeback story has been nothing short of amazing, with its stock rebounding this year by over 145%. Impressively, this upswing emerges despite ongoing financial dives into its metaverse ambitions, which have proven to be detrimental to its financial positioning and stock performance. However, its trailblazing approach to AI and incorporating the technology across its services suite is what has been the major catalyst in its turnaround.

In its most recent quarter, it delivered a heartening 11% year-over-year revenue increase, with a 16% bump in second quarter net income. Moreover, in the past couple of quarters, META stock has soared by estimates across both lines, offering encouraging guidance ahead.

The company has pivoted gracefully toward AI, investing a staggering $7.1 billion into cloud infrastructure in the first quarter alone this year. This push into cloud computing’s computational prowess isn’t merely a spectacle but a masterstroke in commandeering a pivotal market share in the industry. Meanwhile, the recent Connect developer conference, spearheaded by Mark Zuckerberg, introduced some AI innovations, including smart glasses, image-crafting bots, and an upgraded VR headset, that underscore its long-term growth trajectory.

Tencent Holdings (TCEHY)

Tencent Holdings is a global tech and entertainment titan that continues to make major waves in a variety of tech verticals. It garnered plenty of praise recently when China recently unveiled the world’s grandest esports moment, with it taking the reins.

On the financial front, TCHEY is making strides, registering a 5% growth on a year-over-year basis, ahead of the sector median of 3.5%. Adding to this buoyant financial story, TCHEY’s year-over-year net profit margins expanded to 33.9% year-over-year, with its EBITDA margin witnessing an impressive leap of roughly 25.3%.

Furthermore, at the annual Digital Ecology Conference of Tencent Cloud, the curtain was raised on the enigmatic Tencent Hunyuan model. This cutting-edge AI language model boasts a colossal 100 billion parameters and a pre-training corpus exceeding 2 trillion tokens, seamlessly integrating with the company’s existing offerings. This innovation catapults Tencent ahead of its rivals, promising a brighter future by elevating user experiences through increased efficiency and innovation.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Guidelines.

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