Tencent Holdings' (HKG:0700) AI investment could bring in more benefits than constraints, S&P Global Ratings said in a recent release.

The company's AI outlays could reduce EBITDA margins and cash flow for this year, the rating agency said.

On the flip side, the company could boost its market share in China's internet and global gaming if it successfully implements its AI strategy, S&P said.

The company will allocate funding to foundation models and agentic AI, given robust demand for AI applications and potential server and chip supply boosts.

S&P expects Tencent's adoption of agentic AI tools in its ecosystem to enhance the user experience, boost time spent on its platforms, and anchor monetization.

These could offset pressure from AI-linked disintermediation of platforms, S&P said.

Capital investments could rise to 100 billion yuan this year amid a likely increase in procurement costs of AI computing power due to the limited supply of advanced chips, the rating agency said.

S&P revised up its revenue growth forecast for this year to 8% from 7% due to increased revenue from online games, marketing services, and AI-powered enterprise services.

The rating agency believes the company has a measured approach to its AI allocations with a focus on model capability and application development.