Tencent Holdings (HKG:0700) has headroom to cushion a surge in artificial intelligence (AI)-linked spending given its positive cash flows and moderating share buybacks, S&P Global Ratings said in a Monday release.

The internet and technology company's fourth-quarter results point to AI investments driving longer-term boosts in business competitiveness, which S&P said anchors its current rating.

Tencent on Friday launched an updated version of its T1 reasoning model. The launch came amid increasing rivalry in China's AI market following the launch of DeepSeek, which caused a market frenzy earlier this year.

Meanwhile, S&P said Tencent's AI-driven capital expenditure could push above 80 billion yuan in 2025 and 2026, due to increased procurement of AI chips for internal and external demand.

AI investments already yield positive cash flows through enhanced advertising and more efficient game development spending, according to S&P.

Despite the increased spending, the rating agency forecasts only a marginal rise in the company's leverage over the next 12 to 24 months, with a projected near-zero debt-to-EBITDA ratio.

The company's annual cash flow from operations should range between 255 billion yuan and 275 billion yuan, enough to cover larger capital expenditures and shareholder returns, the rating agency said.