5 trillion Tencent makes a fierce comeback

Author | Huang Yu

Editor | Zhou Zhiyu

Is AI a "money-eating beast" or a "money printer"? The entire technology industry is waiting for an answer.

In this AI arms race, where no one dares to be absent, giants are anxious about massive capital expenditures while painting a grand picture of the future for the market. However, amidst the smoke of major companies spending hundreds of billions, the market needs a substantial proof of current returns.

Tencent was the first to respond with an impressive battle report.

On August 13, Tencent released its Q2 2025 financial report. Against the backdrop of a 119% year-on-year surge in capital expenditures to 19.11 billion yuan, its profitability was not eroded. During the reporting period, Tencent's total revenue reached 184.5 billion yuan, a year-on-year increase of 15%, marking the highest quarterly growth rate in four years; at the same time, Non-IFRS net profit attributable to shareholders reached 63.052 billion yuan, a year-on-year increase of 10%, far exceeding market expectations.

Burning money on AI while exceeding profit expectations. The capital market reacted immediately and enthusiastically.

Catalyzed by this financial report, Tencent's stock price revaluation journey reached a climax. Since the beginning of this year, Tencent has risen over 41%, and its total market value recently broke through the 5 trillion yuan mark. On August 14, its stock price even reached 600 HKD/share, hitting a nearly four-year high.

This AI-driven strong growth marks that Tencent's AI strategy has transitioned from the "storytelling" phase of blood transfusion to a virtuous cycle of "blood generation" from core businesses. It has also reignited the market's imagination of Tencent once again challenging the peak of a market value exceeding 7 trillion yuan.

However, the end of this competition is far from over. To answer the ultimate question of whether "AI can unlock the next trillion-dollar growth," Tencent still needs to provide more answers.

AI Revitalizes Three Core Businesses

After the transformations of the past two to three years, the signals for Tencent's return to an expansion cycle are becoming increasingly evident.

It is important to note that in 2022, affected by the economic environment, internet regulation, and sluggish growth in its own business, Tencent's revenue saw a decline for the first time, decreasing by 1% year-on-year to 554.6 billion yuan. Subsequently, Tencent began to implement drastic reforms, mainly focusing on cost reduction and efficiency improvement, as well as shrinking non-core businesses.

The decisive strategic adjustments have brought Tencent's revenue back to double-digit growth. From Q4 2023 to Q3 2024, Tencent's quarterly revenue growth rate remained below 10%, rebounding to 11% in Q4 last year, and rising to 13% in Q1 this year.

By Q2, Tencent's revenue growth rate reached 15%, the highest quarterly growth rate for Tencent in four years.

From a business perspective, social network revenue accounted for 18%, domestic game revenue accounted for 22%, international game revenue accounted for 10%, advertising business accounted for 19%, and financial technology and enterprise services accounted for 30%.

Gaming remains Tencent's pillar business and is the most critical driver of Tencent's total revenue growth. The financial report shows that in Q2, Tencent's gaming business revenue was 59.2 billion yuan, a year-on-year increase of 22% Among them, domestic game revenue reached 40.4 billion yuan, a year-on-year increase of 17%; international game revenue reached 18.8 billion yuan, a year-on-year increase of 35%.

This marks Tencent Games' third consecutive quarter of maintaining over 20% growth, sweeping away the gloom of the previous two years and beginning to show its strength.

In comparison, Tencent's total game revenue for the entire year of 2023 saw only a slight increase, with both domestic and international revenues declining in the fourth quarter. By the first quarter of last year, game business revenue was still not ideal, with an overall year-on-year decline of 0.4% to 48.1 billion yuan, where overseas game revenue grew by 3% and domestic game revenue declined by 2% year-on-year.

To boost the morale of the gaming business, Ma Huateng stated at the annual meeting early last year that gaming is Tencent's ace business, currently claiming to be the largest gaming company in the world, seemingly resting on its laurels of success.

The turning point for the gaming business occurred in the second quarter of last year, when driven by the DNF mobile game, Tencent Games turned around, with domestic market revenue recovering growth and overseas revenue accelerating, both domestic and overseas growing by 9% year-on-year, exceeding expectations.

In light of the achievements in the gaming business, Ma Huateng also generously praised it at the beginning of this year, stating that last year was "very impressive" overall and that "the entire organizational structure and morale have undergone significant changes."

Regarding the reasons for the strong growth of the gaming business again in the second quarter of this year, Ma Huateng pointed out that evergreen games like "Honor of Kings" and "Peacekeeper Elite" are evolving into platform-type products, with both user engagement and revenue increasing. At the same time, new games like "Delta Force" also performed strongly.

Additionally, Tencent mentioned that AI is becoming increasingly important in driving game growth, reflected in various aspects such as game content production, player engagement, and commercialization.

Of course, aside from gaming, Tencent's advertising and marketing revenue also maintained a high growth rate. In the second quarter of this year, Tencent's marketing services revenue reached 35.8 billion yuan, a year-on-year increase of 20%, exceeding the industry average.

Tencent believes that this growth is mainly due to improvements in the AI-driven advertising platform and enhancements in the WeChat transaction ecosystem, which have driven strong demand from advertisers for video accounts, mini-programs, and WeChat search. Marketing service revenue across major industries for Tencent has also seen growth this season.

It is worth mentioning that Tencent's continuously deepening B-end business revenue has also significantly improved. In the second quarter, Tencent's revenue from financial technology and enterprise services reached 55.5 billion yuan, a year-on-year increase of 10%, marking the best year-on-year growth rate for this part of the business in the last six quarters.

Tencent attributes the growth in financial technology service revenue to increases in consumer loan services, commercial payment activities, and wealth management services. At the same time, it noted that the growth rate of enterprise service revenue has accelerated compared to recent quarters, benefiting from increased demand from corporate clients for AI-related services, including GPU leasing and API token usage, as well as growth in merchant technology service fees.

While achieving rapid business growth, Tencent's employee scale has also returned to an expansion phase. By the end of the second quarter of this year, Tencent's total number of employees reached 111,221, an increase of 1,807 from the previous quarter and an increase of 5,715 year-on-year

Yuanbao Takes on Heavy Responsibilities

Regarding the core highlights of Tencent's AI development in the second quarter, Ma Huateng pointed out that Tencent is committed to bringing the benefits of AI to a broader range of consumers and businesses by supporting more application scenarios within the WeChat ecosystem and promoting user growth for the AI-native application "Yuanbao." At the same time, Tencent is continuously enhancing the capabilities of its mixed Yuan model.

Tencent's management also stated that AI has contributed to the growth and commercialization of Tencent's existing businesses in various ways (such as advertising and gaming). Therefore, even though it is currently difficult to charge users directly for AI products, the growth of Tencent's other businesses can provide a practical subsidy for the costs incurred in offering free AI services to users.

In Tencent's AI product matrix, Yuanbao holds a prominent position and is a pioneer in seizing the next generation of top traffic entry points.

Shifting from last year's low-key approach, Tencent has also begun to invest heavily in promoting Yuanbao this year, especially in February and March. Against this backdrop, from February to March, Yuanbao's daily active users (DAU) grew 20 times, briefly becoming the third-ranked AI-native mobile application in China by DAU, with monthly active users exceeding 40 million at one point.

However, Tencent has not maintained a high-intensity investment in Yuanbao continuously. QuestMobile data shows that by May this year, Yuanbao's monthly active user scale had fallen back to 22.56 million, while DeepSeek and Doubao were approximately 170 million and 130 million, respectively, during the same period.

It is evident that although Yuanbao is backed by Tencent, it still faces significant challenges in becoming a super AI application.

During the earnings call, an investor asked why Tencent's management did not aggressively invest to help Yuanbao seize market dominance.

In response, Tencent's management stated that Tencent has already invested a substantial amount of money in AI and will continue to increase its investment in the future. However, this must be a smart investment, not just simply burning money to buy chips, recruit teams, or do marketing. "We need to invest at the right pace."

At the same time, he mentioned that Tencent did indeed invest a lot of resources to promote Yuanbao in the first quarter and successfully acquired a considerable number of users. The core task for the second quarter is to optimize the product and improve retention.

"When we achieve this, we are likely to increase our promotional efforts again." However, the management also clearly stated that future promotions will not just be about spending money to acquire users, as Tencent has many existing platforms (such as WeChat, QQ, etc.) that can be utilized. Deep integration of "Yuanbao" with Tencent's existing national-level applications is a unique and very important advantage and leverage.

Therefore, in the coming months, in addition to increasing promotional efforts again, Tencent will also do more work to integrate Yuanbao with existing national-level applications.

AI is a Protracted Battle

AI has undoubtedly become Tencent's most important strategy at present; however, the essence of the AI competition is not a lightning battle for immediate gains but a protracted battle concerning capital, technology, and strategic foresight.

The capital market's firm support for Tencent's strategic commitment has given a clear reward: pushing its market value back to HKD 5 trillion, reaching a nearly four-year high. This fully demonstrates that the market recognizes the "repair and empowerment" value of AI for Tencent's core business, which is the foundation supporting its current valuation However, moving from 5 trillion to 7 trillion, or even higher, will require not just a "repair" logic, but a brand new story of "creation." To return to the peak of market value, Tencent must answer a core question: Beyond making old businesses better, can AI create a brand new, sufficiently large incremental business?

In this regard, Tencent has also more clearly demonstrated how AI will drive performance growth in its earnings call.

The financial report shows that Tencent continues to increase its investment in AI strategy, with R&D expenditure in the second quarter rising 17% year-on-year to 20.25 billion yuan, and capital expenditure increasing 119% year-on-year to 19.11 billion yuan, a decrease of 30% quarter-on-quarter.

Since accelerating its strategy in the fourth quarter of last year, Tencent's cumulative capital expenditure has reached 83.16 billion yuan, mainly used to support the development of AI-related businesses.

In the March earnings call, Tencent announced that based on last year's record high capital expenditure of 76.7 billion yuan, it would further increase capital expenditure by 2025, continuing to invest in self-developed models in R&D 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.

In this earnings call, Tencent's management stated that the company has sufficient chips to train and continuously upgrade existing models. Additionally, Tencent is enhancing inference efficiency through extensive software optimizations, allowing it to handle more workloads on the same number of chips.

At the same time, Tencent's management pointed out that the annual capital expenditure guidance has not yet been revised.

Regarding the impact of AI investment on profitability, Tencent stated that the depreciation costs related to AI will indeed continue to rise, but at the same time, the benefits Tencent gains from AI are also becoming increasingly evident. "The rhythm of these two (costs and benefits) may not completely match, but their long-term trends are both positive."

Against the backdrop of steadfast investment, Tencent's overall AI product matrix is becoming increasingly complete, establishing a "1+3+N" AI panoramic system, with Tencent's self-developed Hunyuan large model as the core engine, building a complete architecture that encompasses platform capabilities and diverse applications.

Tencent's AI application blueprint is divided into two main parts: one is AI-native applications, including the AI assistant "Tencent Yuanbao," the AI smart workstation "ima," and AI search "QQ Browser"; the other is Tencent ecosystem applications that fully integrate AI capabilities, such as WeChat, QQ, QQ Music, Tencent Meeting, Tencent Documents, Tencent Maps, etc.

Analysts at First Shanghai Securities believe that Tencent's continued investment in AI capabilities and platform-level synergy strategy has begun to show results, with core scenarios such as advertising, gaming, and WeChat AI all building new growth momentum. Referring to the 2025 profit forecast, they maintain a target price of HKD 660 for Tencent, close to Tencent's historical stock price peak.

In this global AI competition, Tencent's biggest advantage lies in its vast user base and scenarios. It has also clarified its strategy to focus on creating "good products," aiming to fully integrate "usable, easy to use, and useful" AI tools into the daily digital lives of 1.4 billion people With AI reinforcing its fundamentals, Tencent has successfully embarked on its expedition to return to the peak, establishing a solid foundation. The air and supplies here are sufficient to support it in fighting a brutal war of attrition.

This financial report can be seen as Tencent's first key victory in this expedition. It greatly boosted market confidence and proved the preliminary effectiveness of its strategic path. However, from winning a battle to winning the entire war, it remains a "Long March" full of uncertainties and challenges. Technology may be disrupted, and competitors are also rapidly evolving.

Looking upwards, the peak of 7 trillion remains shrouded in clouds and mist. Whether it can ultimately reach the summit depends not on the endurance of the climbing team, but on whether they can find a brand new, uncharted climbing route—one that is laid out on the unknown landscape of AI-native applications