Tencent's AI Arms Race Rapid Expansion

Author | Huang Yu

Editor | Zhou Zhiyu

After heavily investing in AI, Tencent achieved a strong start in its 2025 performance.

On May 14, Tencent Holdings ( 00700.HK ) released its first-quarter financial report for 2025, showing revenue of 180.02 billion yuan, a year-on-year increase of 13%; Non-IFRS net profit attributable to shareholders was 61.329 billion yuan, a year-on-year increase of 22%.

Both revenue and non-IFRS net profit attributable to shareholders exceeded market expectations, with revenue achieving double-digit growth, and the gap in growth rates between revenue and non-IFRS net profit narrowing.

It is worth noting that from the fourth quarter of 2023 to the third quarter of 2024, Tencent's quarterly revenue growth rate was below 10%, rebounding to 11% in the fourth quarter of last year; in addition, for the past seven consecutive quarters, Tencent's non-IFRS net profit growth rate has exceeded 30%.

Now, with revenue growth accelerating and non-IFRS net profit growth slowing, this reflects, to some extent, that after two to three years of "convergence and focus," Tencent has entered a new expansion cycle driven by AI.

The financial report contains more signals confirming this shift.

From the financial data, in the first quarter of this year, Tencent's capital expenditure reached 27.48 billion yuan, a year-on-year increase of 91%, accounting for 15% of revenue; in addition, Tencent's general and administrative expenses increased by 36% year-on-year to 33.6 billion yuan. This increase, apart from a 4 billion yuan overseas acquisition, mainly came from increased R&D expenses related to AI.

Furthermore, due to the promotion of its AI-native app Yuanbao, Tencent's investment in the first quarter was also considerable, leading to a 4% year-on-year increase in sales and marketing expenses to 7.9 billion yuan, which is still after a reduction in advertising expenses for new game releases compared to the same period last year.

It is noteworthy that as of the end of the first quarter of this year, Tencent's workforce also increased by 4,627 employees year-on-year, bringing the total number of employees to 109,414.

Tencent's commitment to investing in AI is evident.

At the performance meeting in March, Tencent announced that based on last year's record-high capital expenditure of 76.7 billion yuan, it would further increase capital expenditure in 2025, continuing to invest in self-developed models and accelerating AI application development across various business groups. At the same time, Tencent will also invest in marketing to enhance user awareness and adoption of new AI products, such as Yuanbao.

To take the lead in this AI arms race, Tencent will inevitably need to attract more AI talent. On April 17, Tencent announced the launch of its largest employment plan in history, aiming to add 28,000 internship positions over three years and increase conversion to full-time employment, with 10,000 campus recruitment interns expected in 2025, 60% of whom will be open to technical talent.

Tencent stated that against the backdrop of accelerating the implementation of large models, it has intensified recruitment efforts for technical positions in artificial intelligence, big data, cloud computing, game engines, and digital content, with an unprecedented expansion in technical recruitmentTencent Chairman and CEO Ma Huateng stated: "We believe that during the investment phase of our AI strategy, the operational leverage brought by existing high-quality revenue will help absorb the additional costs generated by these AI-related investments, maintaining financial stability."

At the same time, Ma Huateng pointed out that in the first quarter of this year, AI capabilities have already made substantial contributions to performance advertising and evergreen games.

As Tencent's pillar business, game revenue grew overall by 24% in the first quarter, achieving the highest growth rate in nearly three years. In the domestic market, the sustained vitality of leading products such as "Honor of Kings" and "Peacekeeper Elite," combined with new increments from titles like "Delta Force," led to a year-on-year revenue increase of 24% to 42.9 billion yuan; the international market saw a year-on-year growth of 23% to 16.6 billion yuan.

During the earnings call that day, Tencent's management stated that an important factor driving the long-term growth of the gaming business is the application of AI technology, especially in large-scale competitive multiplayer games, where the role of AI is particularly prominent. The integration of AI and gaming is something Tencent has always aimed to achieve, and deploying AI in large competitive games is still in the early stages, but Tencent will continue down this path.

Additionally, in the first quarter of this year, Tencent's advertising revenue grew by 20% year-on-year to 31.9 billion yuan, achieving double-digit growth for ten consecutive quarters. This growth is attributed not only to the continuous AI upgrades of the advertising platform but also to increased user engagement and the optimization of the WeChat transaction ecosystem.

In Tencent's AI strategy, the role of Yuanbao is very important, as it is the pioneer for Tencent to seize the next generation of super traffic.

To promote Yuanbao, in addition to increasing investment in traffic, Tencent has also actively driven traffic to Yuanbao through Tencent's products, including WeChat, and last month added Yuanbao as a WeChat contact.

Tencent's management pointed out that in the future, there will definitely be a gradual strengthening of the connection between the WeChat ecosystem and the Yuanbao chat assistant, with different practices being implemented, and perhaps in a few quarters, they will be able to report more systematically to everyone.

Besides AI, WeChat e-commerce is also seen as an important driver of Tencent's future performance growth.

Since the beginning of this year, Tencent has activated the WeChat e-commerce ecosystem, allowing video account window influencers to upgrade to "WeChat store sellers," achieving full-domain sales; the WeChat store function continues to improve, launching new scenarios such as Moments sharing and red packet lotteries, while also providing more support for merchants to expand their brand product offerings, contributing to rapid year-on-year growth in transaction volume.

On the same day the first quarter earnings report was released, news emerged that the WeChat business group announced the establishment of an e-commerce division. According to Wall Street News, the newly established e-commerce division is responsible for exploring transaction models within WeChat, accelerating the development of transaction infrastructure and ecosystem, and operating new transaction models for WeChat.

However, Tencent's management stated that the previous WeChat e-commerce team was incubated within the open platform department, and as the team size expanded, it was formally made independent, with no changes in management, still led by the original manager. Therefore, this adjustment is merely an organizational restructuring and does not represent a significant change in business direction or strategy.

While placing importance on the e-commerce business, Tencent is also very patient with WeChat e-commerce, believing it to be a very long-term project that requires a long runwayIn this competition of the AI era, Tencent has made a good start.

Huachuang Securities pointed out that they are optimistic about Tencent's top-down promotion of AI transformation products in 2025, which will bring user experience innovation and open up incremental commercialization space, driving valuation improvement, and giving Tencent a target price of HKD 544-604.45 for 2025.

In fact, since the beginning of the year, Hong Kong's technology stocks have performed brilliantly, among which Tencent's stock price has continued to rise, breaking through the HKD 500 mark, with an increase of nearly 25% from the beginning of the year to now. As of the close on May 14, Tencent's stock price was approximately HKD 521 per share, with a total market capitalization of about HKD 4.79 trillion.

After two years of convergence and focus, Tencent has begun a new round of cautious expansion. Based on the traffic advantages established in the internet era, whether Tencent can return to its previous market capitalization peak of over HKD 7 trillion still requires time to provide an answer