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<Research>JPM: Game Licensing Regime Forms Moat; TENCENT, NTES-S to be AI Beneficiaries
Recommend 20 Positive 34 Negative 10 |
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The market was wary that AI will disrupt China's online gaming industry, but this view overlooks the unique supply-side constraints of the Chinese market, JP Morgan said in a research report. The broker assumed that AI applications will disproportionately benefit large incumbent operators such as TENCENT (00700.HK) and NTES-S (09999.HK), and that current valuations present an investment opportunity. The broker highlighted reinforcing mechanisms of AI in China's gaming market: (1) AI enables operators to continuously update and expand existing game portfolios that have already obtained licenses, with return on this investment scales non-linearly with the size of the existing player base; (2) the AI advantage of large operators lies not in a single proprietary model, but in their ability to orchestrate AI integration across the entire production and operations process. JP Morgan said the current de-rating appears to reflect an indiscriminate application of the global disruption narrative to a market where the structural dynamics point in the opposite direction. As the market narrative shifts from AI disrupting game operators to AI reinforcing operators in a supply-constrained market, the broker estimated the gaming businesses of both companies to see a re-rating. JP Morgan assigned an Overweight rating to both TENCENT and NTES. Auto-translated by AI AASTOCKS Financial News |
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