Chinese tech company Tencent is a gaming giant and the parent company of WeChat, the ubiquitous social messaging app in China.
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Tencent on Wednesday posted a surge in spending in the second quarter, with executives touting the potential of “superior” returns on the company’s investment in China’s cut-throat AI market.
The company said capital expenditures for the June quarter rose 65% to 52.8 billion yuan ($7.8 billion) from the previous quarter, as it continues to ramp up buying and building computing infrastructure to monetize its AI models. The company said its free cash flow came in at negative 13.8 billion yuan in the quarter.
“At the infrastructure level, we substantially stepped up our procurement of compute, which will enable us to convert usage of our applications and models into revenue going forward,” Tencent CEO Ma Huateng said in a statement accompanying the earnings release.
During the earnings call, most of the questions asked by analysts related to the potential return on Tencent’s capex: a theme across this tech earnings season in the U.S. that is filtering through to China.
In response to one analyst’s question, Chief Strategy Officer James Mitchell said the company could achieve a “decent return in an immediate timeframe” if the tech giant rented out all of its compute capacity.
Instead, Tencent is using some of the capacity to build “state-of-the-art” AI models and applications of its own, which Mitchell said would translate to “superior economic returns over the longer term.”
Tencent also said on the earnings call that its cloud business grew at a rate of a “low-twenties” percentage thanks to AI demand and international expansion. The company said it was able to raise prices for Tencent Cloud customers.
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.
Tencent stock year-to-date.
The Shenzhen-headquartered firm 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. Tencent said on Wednesday that it has started a “small-scale prototype test” for Xiaowei in recent weeks.
Last month, Tencent also launched Hy3, its latest AI model, which it has since expanded globally. Tencent President Martin Lau said it is developing its next model, Hy4, which will be a bigger model than Hy3 and be able to beat AI models of an even bigger size in terms of performance.
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.
Gaming accelerates
On Wednesday, 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.
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.
However, revenue at the company’s international game revenue fell 0.8% year-on-year due to currency movements, Tencent said. Revenue was up 4% on a constant currency basis.
Tencent is one of the world’s largest gaming companies and both domestic and international revenue are watched closely by investors.
Another driver of growth in the quarter was Tencent’s marketing services, aided by AI. Revenue at the division rose 22% year-over-year to 43.6 billion yuan, supported by “enhancements” to Tencent’s AI-driven ad recommendation model, the company said. This feature uses AI to decide what ads to show users on Tencent’s platforms like WeChat.
Overall, Tencent posted rising gross profit at all of its main divisions, as it looks to satisfy investors that its investments are paying off.