Tencent's AI-driven ads beat Q2 estimates, but profit misses
Tencent beat second-quarter revenue estimates on accelerating game sales and AI-driven advertising, but the results laid bare the tension at the heart of its AI bet: core profit missed expectations, and capital spending jumped 65% quarter over quarter.
Tencent posted revenue of 204.78 billion yuan ($30.36 billion) for the quarter ending in June, up 11% year on year and ahead of the 202.17 billion yuan analysts expected. Net profit rose less than 1% to 56 billion yuan, falling short of the 61.82 billion yuan forecast; strip out one-time items and Tencent's preferred profit measure climbed 9% to 68.4 billion yuan.
The AI story was most visible in advertising. Marketing services revenue grew 22% to 43.6 billion yuan, which the company credited to enhancements in its AI-driven ad recommendation model — the system that decides which ads appear across WeChat and its other properties. Domestic games also re-accelerated, up 17% to 47.3 billion yuan on titles like Delta Force and Honor of Kings, versus 6% growth in the first quarter, while international games slipped 0.8% on currency moves.
The spending side is where the tension sits. Capital expenditure hit 52.8 billion yuan in the June quarter, up from 31.9 billion yuan in the first quarter, as Tencent said it "substantially stepped up" its procurement of compute to convert app and model usage into revenue. Cloud demand for AI-related services helped lift fintech and business services revenue 9% to 60.3 billion yuan. On the product front, Hy3 — the latest Hunyuan model released in July — opened to users worldwide last week, and Tencent has started a small-scale prototype test of Xiaowei, an AI assistant inside WeChat that could eventually put an agent in front of more than 1.4 billion users.
The market context explains the stakes: Tencent stock is down 26% this year as investors weigh its rising AI spending against intense competition from Alibaba, DeepSeek and Moonshot AI's Kimi. This quarter shows the monetization loop starting to close on the revenue side — AI is demonstrably lifting the ad business — but the profit miss is a reminder that in China's frontier-model race, the payoff is still a promise being funded rather than a margin delivered.
What to watch: whether Xiaowei graduates from prototype to a full WeChat rollout, and whether the 22% ad growth holds as AI-driven recommendation becomes table stakes across Chinese platforms.
Do you think AI-driven ads can fund China's model race before the compute bills catch up? Tell us in the comments.
