China's leading big tech corporations Tencent Holdings posted double-digit revenue growth in the second quarter, powered by steady gains in its advertising and gaming businesses. But net profit growth slowed as investments related to artificial intelligence (AI) increased.
Tencent said on the 12th that second-quarter revenue rose 11% from a year earlier to 204.8 billion yuan (about 42.9 trillion won). Net profit came to 56.02 billion yuan (about 11.7 trillion won), up a modest 0.7% in the same period. Net profit also fell short of the market consensus of 61.8 billion yuan (about 12.9 trillion won).
Advertising and gaming lifted revenue. Revenue in the value-added services institutional sector, including games, rose 8% from a year earlier to 98.4 billion yuan (about 20.6 trillion won). In China, game revenue increased 17% to 47.3 billion yuan, led by long-running hits "Delta Force" and "VALORANT."
Revenue from marketing services such as advertising increased 22% to 43.6 billion yuan (about 9.1 trillion won), and revenue in the Fintech institutional sector grew 9% to 60.3 billion yuan (about 12.6 trillion won).
As Tencent made large-scale AI investments, capital expenditure surged more than twofold to 52.8 billion yuan (about 11 trillion won) from a year earlier. Free cash flow (FCF) also turned negative.
Tencent said it plans to more than double its AI-related expenditure this year. It will focus investments on developing its own AI models and deeply integrating AI agents across its ecosystem.
Ma Huateng, Tencent chief executive officer (CEO), said, "We have significantly increased the procurement of computing resources, which will allow us to convert future application and model usage into revenue."
Tencent has a lineup of AI products including the chatbot Yuanbao and the workplace AI agent WorkBuddy, and unveiled its latest AI model "Hy3" in July. It is also testing AI agents with some users on "Weixin (WeChat)," a social media (SNS) platform with 1.44 billion users.
The market is watching whether Tencent's large-scale AI expenditure will translate into actual revenue and profit. Bloomberg noted that Tencent's AI-related expenditure is conservative compared to rivals, adding that unlike Alibaba, which said it would spend more than $50 billion (about 70.6 trillion won) over three years on AI infrastructure, Tencent is not presenting multi-year targets.