Tencent Turns Down 30% Instant Profit on $53B AI Infrastructure to Build Own Models

Tencent says it could make instant profits on $53B hardware splurge by renting it for AI workloads

Chinese tech giant Tencent has turned its back on instant profits, betting that a new business unit that creates its own AI and embeds that in its products will pay off to a greater extent than cashing in on demand for computing resources. During the company's Q2 earnings call yesterday, Bernstein analyst Robin Zhu asked when Tencent expects to see a return on investment from the $53 billion capital expenditure it made in the quarter. Chief Strategy Officer James Mitchell said demand for compute resources is so strong that Tencent could recover its depreciation costs "almost immediately" if it rented its infrastructure. Company president Martin Lau said if Tencent behaved like a neocloud it would "achieve a decent return in an immediate timeframe" as the company has offers for its compute capacity "at more than 30 percent profit compared to the price that we paid just a few months ago." Lau said Tencent is instead "playing a different game or executing a larger strategy in that we are allocating a very substantial proportion of the new compute to building our own models to state-of-the-art status, and also to deploying, popularizing, and bringing our own AI applications to market leadership in China." He said Tencent believes that if Tencent can provide "superior intelligence that we can achieve through state-of-the-art models, through market-leading AI applications ... we can then convert into superior economic returns over the longer term." Those returns will come from selling tokens for services like WorkBuddy, which Tencent says is an agent swarm that can "plan, execute, and run tasks in parallel, handing back complete deliverables end-to-end in one flow." Tencent also offers CodeBuddy, a code generation tool that Mitchell said is accelerating cloud migration projects and therefore creating more business for Tencent cloud. Tencent released its latest model, the 295-billion open-weight Hunyuan-3 in July. Lau described it as "a very small model" and promised that the forthcoming Hunyuan-4 will be bigger - and more capable than larger models from other companies. He also said Tencent is designing its products specifically to work with Hunyuan-4, and that mutual optimization will make those products more powerful than would be the case if they relied on other models. The company also plans a fifth version of Hunyuan, and Lau said at some point Tencent will deliver a state-of-the-art model. Tencent is already producing thoroughly modern results for a tech giant: Revenue for Q2 grew 11 percent to reach $30.3 billion. Net profit rose nine percent to $10.3 billion. The company's flagship messaging apps, Weixin and WeChat, saw average monthly active users rise seven million to 1.349 billion. Advertising-related revenue rose 22 percent, and the company's gaming biz grew 17 percent in China alone. Investors aren't sure what to make of this. The company's share price has trended down since Wednesday and dipped around three percent since the company's earnings announcement. ®

Chinese tech giant Tencent posts revenue beat on accelerating games sales, AI-driven ads

Tencent posted a beat on second-quarter revenue thanks to an acceleration at its China gaming unit and AI-driven advertising, but its core profit missed analyst expectations. The Chinese tech giant also reported a rise in capital expenditure in the quarter. Here's how Tencent did in the second quarter versus LSEG estimates: * Revenue: 204.78 billion Chinese yuan ($30.36 billion) versus 202.17 billion yuan expected * Net profit: 56 billion Chinese yuan versus 61.82 billion yuan expected Revenue rose 11% year-on-year while profit was up nearly 1%. Tencent said that, stripping out one-time factors and certain non-cash items, its profit was 68.4 billion yuan in the quarter, up 9% versus the same time last year. Tencent said its domestic games revenue came in at 47.3 billion yuan, up 17% year-on-year, driven by key titles such as Delta Force and Valorant PC and Mobile. That was faster than the 6% growth the division saw in the first quarter of this year, and the same level seen in the second quarter of 2025. Tencent stock was down 26% year-to-date at Wednesday's closing bell in Hong Kong, as the company faces intense competition in China in AI and investors grow jittery about its rising spending. The company also saw a slowdown in gaming growth in the first quarter of the year. The company has sought to leverage its massive user base of more than 1.4 billion people for Weixin and WeChat, China's most popular messaging app. In June, Tencent started testing an AI assistant called Xiaowei within WeChat in China. Last month, Tencent also launched Hy3, its latest AI model, which it has since expanded globally. But Tencent is facing a slew of competition in the AI space, from established titans like Alibaba to newer entrants like DeepSeek and Moonshot AI, the developer of the Kimi models.

Tencent says it could make instant profits on $53bn hardware splurge by renting it for AI workloads

Chinese tech giant Tencent has turned its back on instant profits, betting that a new business unit that creates its own AI and embeds that in its products will pay off to a greater extent than cashing in on demand for computing resources. During the company's Q2 earnings call yesterday, Bernstein analyst Robin Zhu asked when Tencent expects to see a return on investment from the $53 billion capital expenditure it made in the quarter. Chief Strategy Officer James Mitchell said demand for compute resources is so strong that Tencent could recover its depreciation costs "almost immediately" if it rented its infrastructure. Company president Martin Lau said if Tencent behaved like a neocloud it would "achieve a decent return in an immediate timeframe" as the company has offers for its compute capacity "at more than 30 percent profit compared to the price that we paid just a few months ago." Lau said Tencent is instead "playing a different game or executing a larger strategy in that we are allocating a very substantial proportion of the new compute to building our own models to state-of-the-art status, and also to deploying, popularizing, and bringing our own AI applications to market leadership in China." He said Tencent believes that if Tencent can provide "superior intelligence that we can achieve through state-of-the-art models, through market-leading AI applications ... we can then convert into superior economic returns over the longer term." Those returns will come from selling tokens for services like WorkBuddy, which Tencent says is an agent swarm that can "plan, execute, and run tasks in parallel, handing back complete deliverables end-to-end in one flow." Tencent also offers CodeBuddy, a code generation tool that Mitchell said is accelerating cloud migration projects and therefore creating more business for Tencent cloud. Tencent released its latest model, the 295-billion open-weight Hunyuan-3 in July. Lau described it as "a very small model" and promised that the forthcoming Hunyuan-4 will be bigger - and more capable than larger models from other companies. He also said Tencent is designing its products specifically to work with Hunyuan-4, and that mutual optimization will make those products more powerful than would be the case if they relied on other models. The company also plans a fifth version of Hunyuan, and Lau said at some point Tencent will deliver a state-of-the-art model. Tencent is already producing thoroughly modern results for a tech giant: Revenue for Q2 grew 11 percent to reach $30.3 billion. Net profit rose nine percent to $10.3 billion. The company's flagship messaging apps, Weixin and WeChat, saw average monthly active users rise seven million to 1.349 billion. Advertising-related revenue rose 22 percent, and the company's gaming biz grew 17 percent in China alone. Investors aren't sure what to make of this. The company's share price has trended down since Wednesday and dipped around three percent since the company's earnings announcement. ®

Tencent capex jumped 176% and free cash flow went negative

Tencent's capital spending nearly tripled and its cash flow turned negative. Executives spent the call explaining what happens if the AI bet does not pay off. Tencent reported second-quarter revenue of 204.8bn yuan ($30.4bn) on Wednesday, up 11% and ahead of forecasts. Net profit came in at 56bn yuan against the 61.8bn analysts expected, CNBC reports. Capital expenditure rose 176% on the year to 52.8bn yuan, about $7.8bn. Free cash flow swung to an outflow of 13.8bn yuan. Those four numbers describe one decision. The company is spending its profit on compute and telling investors to wait. The number worth doing by hand Put the two cash figures side by side. Tencent spent 52.8bn yuan on capital expenditure in the quarter. Free cash flow landed at minus 13.8bn yuan, Bloomberg reports. So operations did not generate enough to cover the infrastructure bill and the company's other outgoings. That is the quarter in one line. WeChat, the games, the advertising and the cloud between them did not cover the compute. A company that has printed cash for two decades just spent more than it made. Two ways to say the same figure The 176% figure is a year-on-year comparison, and the South China Morning Post led on it. Against the previous quarter, capital expenditure rose 65%. Both come from the same release. Most coverage picked one or the other, and the gap between them is the story of how fast this accelerated. Operating costs climbed 22.6% in the quarter, according to Bloomberg Intelligence. Adjusted operating profit growth slowed to 9.2%. Adjusted net income reached 68.4bn yuan, up 9% and roughly in line with expectations. The fallback plan is becoming a landlord Analysts spent the call asking about returns, and the answers were unusually specific. Chief strategy officer James Mitchell said Tencent could get a "decent return in an immediate timeframe". It would only have to rent out all of its compute capacity. It is choosing to build its own models instead, for what he called "superior economic returns over the longer term". President Martin Lau made the same point as a floor rather than a ceiling. In the worst case, which he said the company does not expect, that infrastructure can be rented out at cost recovery. "There is also clear downside protection," he told analysts. Read that plainly. The downside case for a $7.8bn quarterly compute bill is that Tencent becomes a neocloud. That is a real business. It is also a very different company from the one selling game skins and advertising. Punished for spending, punished for not committing Here is the bind. Alibaba has pledged more than $50bn over three years for AI infrastructure. Tencent has set no multiyear target at all, saying only that its investment in AI products will double this year. So the market gets to have it both ways. The stock is down 26% this year and roughly $170bn of market value has gone. Part of that is the spending looking reckless. Part of it is the spending looking insufficient. Tencent is the only one of China's biggest tech names without a flagship model at the frontier. The competition has been loud. Moonshot's Kimi K3 matched industry leaders on far fewer resources. Alibaba's Qwen3.8-Max topped several charts. Tencent hedged by joining DeepSeek's debut funding round and wiring its V4 model across its own products. What is actually working The operating business had a good quarter. Domestic games revenue rose 17% to 47.3bn yuan on Delta Force and Valorant. That accelerated sharply from 6% in the first quarter. Marketing services rose 22% to 43.6bn yuan, which Tencent credits to AI-driven ad targeting. Cloud grew in the low twenties and the company raised prices. International games slipped 0.8% on currency, or grew 4% in constant terms. WeChat and Weixin reached 1.44 billion monthly users, up 2%. QQ Mobile fell 2% to 520 million. Tencent has also been cutting studio investments in Japan and trimming staff at LightSpeed and TiMi. Its own AI products are early but not nothing. WorkBuddy is now China's most popular AI office tool with 21 million monthly visits in June. Xiaowei, the assistant inside WeChat, is still in what Tencent calls a small-scale prototype test. Why Amsterdam cared The result moved a European stock. Prosus, the Amsterdam-listed group that holds a large Tencent stake, fell 6% on the day. A quarterly report from Shenzhen is a European market event. That link is rarely visible until a day like this one. Tencent has been buying the hardware for a while. It struck a reported $3bn memory deal with CXMT. Founder Pony Ma told analysts the company is "making substantial progress toward building a new AI-empowered Tencent". The test arrives in about three months. Tencent says Hy4, a larger successor to the Hy3 model it shipped last month, lands later this year. Either that model competes with the best from DeepSeek and Moonshot, or the compute bill bought a seat at someone else's breakthrough.

China tech giant Tencent's Q2 profit down as AI push builds

Beijing (AFP) - Chinese tech firm Tencent posted quarterly net profit Wednesday that was short of expectations, as the gaming and advertising giant looks to monetise its heavy investment in artificial intelligence. Shenzhen-based Tencent is the developer and operator of China's multifunctional app WeChat, and has also emerged in recent years as one of the country's top AI players. WeChat users and company observers are awaiting the potential release of an AI agent embedded directly in the app, which is used by more than a billion people. Tencent's net profit during the second quarter of 2026 was 56 billion yuan ($8.3 billion), up 0.7 percent year-on-year, according to a filing posted on the Hong Kong Stock Exchange website. The figure represented a four-percent fall from the first quarter, also missing a Bloomberg forecast of 58.4 billion yuan. In a more positive sign for the firm, revenue jumped 11 percent during the period to total 204.8 billion yuan, the filing showed. That figure was slightly higher than estimated by the Bloomberg forecast. "We are making substantial progress towards building a new, AI-empowered Tencent in terms of intelligence, applications, and infrastructure," the firm said in the filing. Tencent, which owns the developer of popular eSports titles including "League of Legends", has sizeable operations in other areas from cloud computing to entertainment. The firm, along with fellow Chinese tech titans Baidu and Alibaba, has stepped up spending on AI products in recent years. Founder Pony Ma earlier this year likened Tencent's previous AI efforts to a "leaky" ship, adding: "We still hope the ship can sail faster." Tencent is also reportedly in discussions to retake stakes in AI startup Manus as the largest shareholder. Manus said Tuesday it would resume independent operations, months after Beijing blocked Meta's acquisition of the Chinese-developed, Singapore-based firm. Tencent has also been among the Chinese tech giants racing to take advantage of a surge in interest in the country in OpenClaw -- an AI agent platform created by an Austrian programmer. Tencent and others are offering simplified installation and affordable coding plans to help users host OpenClaw agents on cloud servers.

Why is Tencent stock sliding today? By Investing.com

Investing.com -- Tencent stock fell 3.7% to HK$444.4 on Thursday after the company's Q2 2026 earnings report, released the prior evening, delivered a bottom-line miss that rattled investors already on edge about the company's escalating AI spending. Net profit attributable to shareholders rose just 0.7% year-over-year to RMB 56.0 billion, falling roughly 4% short of the consensus estimate of RMB 58.5 billion, even as revenue climbed 11% to RMB 204.8 billion -- a figure that narrowly topped forecasts. The quarter also marked a historic inflection point: free cash flow turned negative for the first time since 2005, as capital expenditure surged to RMB 52.8 billion on AI infrastructure buildout. On the analyst front, Morgan Stanley moved swiftly after the results, slashing its price target on Tencent from HK$650 to HK$550 -- though it kept its Overweight rating -- arguing that the elevated AI investment would weigh on near-term profitability, with earnings expected to remain broadly flat from the second half of 2026 through 2027. The bank raised its capex forecasts for both 2026 and 2027 to RMB 200 billion each, meaningfully lowering its operating profit projections in the process. Tencent CEO Pony Ma defended the spending, saying the company had substantially stepped up compute procurement to convert AI application usage into future revenue. The broader Hong Kong market provided no cushion, with the Hang Seng Index opening down approximately 0.6%. This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Tencent Q2 revenue climbs 11% on AI-driven ad gains, but profit falls short

BEIJING, Aug 12 (Reuters) - Tencent Holdings reported an 11% rise in second-quarter revenue on Wednesday, driven by strong advertising sales and steady gaming income, as the Chinese technology giant ramps up AI spending. For the three months to the end of June, the Shenzhen-based gaming and internet company reported revenue of 204.8 billion yuan ($30.36 billion), in line with analyst estimates of 202.2 billion yuan, according to LSEG data. Net profit rose only 0.7% from a year earlier to 56 billion yuan, falling short of analyst expectations of 61.8 billion yuan. Investors have been focused on whether Tencent's heavy AI spending is starting to generate returns, or merely weighing on margins. Capital expenditure totalled about 79 billion yuan last year, up from 77 billion yuan in 2024, and the company has signalled AI investment will step up further in the second half of this year. The results come amid an accelerating AI product push by Tencent, which competes with the likes of ByteDance and Alibaba. The company has built up a broad portfolio of AI products, including the Yuanbao chatbot and the WorkBuddy office assistant. Revenue from value-added services, which include Tencent's gaming business, rose 8% to 98.4 billion yuan. Domestic games revenue grew 17% to 47.3 billion yuan supported by titles including "Honor of Kings" and "Delta Force", while international games revenue was down 0.8% to 18.6 billion yuan due to foreign currency movements. Marketing services revenue climbed 22% to 43.6 billion yuan, as AI upgrades continued to boost advertising and pricing within its Weixin ecosystem, the network that combines messaging, payments and social media, among other services. Fintech and business services revenue rose 9% to 60.3 billion yuan, with cloud demand for AI-related services remaining a key driver. In July, Tencent released Hy3, the latest version of its Hunyuan AI model, and last week opened it to users worldwide. It has also been testing an AI assistant inside its WeChat social media app since June. Capital expenditure in the June quarter was 52.8 billion yuan, compared with 31.9 billion yuan in the first quarter. ($1 = 6.7449 Chinese yuan renminbi) (Reporting by Liam Mo and Eduardo Baptista; Editing by Joe Bavier and Keith Weir)