Buyback suspension combined with continued sell-off in the US stock software sector, Tencent's market value drops below 5 trillion HKD

On February 5th, during trading hours, Tencent Holdings (00700.HK) stock price fell by 2.87%, trading at HKD 542 per share, with a market capitalization of HKD 4.95 trillion, falling below HKD 5 trillion. As of the time of writing, Tencent declined by 2.69% for the day, trading at HKD 543 per share. Previously, Tencent’s stock price had decreased for four consecutive trading days.

Some analysts believe that Tencent’s recent continuous decline may be related to the overall market environment’s weakness. Tencent’s ongoing share repurchases have been an important support for the company’s stock price. However, the company has recently paused its repurchase program, causing this key buying force to temporarily disappear. Coupled with increased market selling pressure, this has triggered a short-term decline in the stock price.

The company is expected to release its annual report on March 18, and since January 18, it has been in a quiet period for buybacks. Therefore, Tencent has suspended repurchases since January 16.

Additionally, with risk appetite decreasing, recent sell-offs in software stocks have continued to spread across the tech sector. On February 4th, U.S. stock technology shares declined across the board, with the U.S. storage chip index experiencing a significant drop. The Philadelphia Semiconductor Index (SOX) and the U.S. Smart Semiconductor Index (FTXL) both fell over 4%. Shares of SanDisk (SNDK.US) closed down 15.95%, and Micron Technology (MU.US) dropped 9.55%.

Analysts point out that this adjustment in storage chip stocks is not due to a single “black swan” event but rather a concentrated retreat caused by multiple factors: weakening market risk appetite, excessive previous gains in individual stocks, and valuations and expectations being pushed to extremes. This ultimately led to profit-taking and short-term capital withdrawals.

Recently, tech giants such as Google, Microsoft (MSFT.US), and Meta (META.US) have been sold off due to their earnings reports showing high AI expenditure. Investors are concerned that large-scale capital investments in AI may take longer than expected to yield results. Analysts forecast that Microsoft, Alphabet, Meta, and Amazon (AMZN.US) will invest over $500 billion in AI this year.

CITIC Securities’ latest research report states that the U.S. software sector is currently under intense selling pressure. Historically, in the face of skepticism towards technological waves, the best and only response has been strong corporate performance, and this AI wave is no exception. Compared to AI startups, traditional software companies have clear advantages in customer resources, delivery services, domain knowledge, and data accumulation. They are also actively responding to potential AI impacts and opportunities through M&A, product, and business model adjustments. Who will ultimately benefit or be harmed may remain a topic of ongoing discussion for a long time. However, considering the current overall risk-off environment in the U.S. stock market and the slow pace of short-term performance improvement in software companies, the painful state of the U.S. software sector may continue for some time. From a medium- to long-term perspective, based on the underlying logic of AI, company valuation levels, and other factors, now is an excellent window to invest in asset-liability-healthy, platform-based application software, cybersecurity firms, and foundational software (such as data management and ITOM companies) that continue to benefit from computing infrastructure.