Tencent’s AI story has entered a more expensive phase. On 12 August the company posted second-quarter revenue of 204.79 billion yuan, up 11 per cent, with non-IFRS operating profit of 75.64 billion yuan, up 9 per cent, and non-IFRS net profit of 68.4 billion yuan, up 9 per cent. On the surface, a steady report.
Strip out the new AI products, Hunyuan, Yuanbao, CodeBuddy, WorkBuddy and Xiaowei, and the picture splits. Without them, non-IFRS operating profit would have been 86.1 billion yuan, up 19 per cent. The new AI business cut about 10.5 billion yuan from operating profit this quarter, up from roughly 8.8 billion yuan in the first. AI pulled the group’s profit growth from 19 per cent down to 9 per cent.
528 billion yuan aimed at AI
The sharper shift shows in cash flow. Second-quarter capital spending reached 52.78 billion yuan, up 176 per cent year on year and 65 per cent quarter on quarter; research and development was 27.28 billion yuan, up 35 per cent. Driven by large prepayments for compute, free cash flow turned to a 13.8 billion yuan outflow, or 37.6 billion yuan positive if those prepayments are excluded.
Chief strategy officer James Mitchell told the call that with demand strong and lease prices high, Tencent could rent the compute out almost at once and recover depreciation quickly. But the company chose another path: most new compute feeds its own models and apps, honing them to the front rank before converting capability into longer-term returns through WorkBuddy token sales. President Martin Lau framed it as a start-up-phase lump investment, not a yearly linear rise.
The clearest near-term loop is WorkBuddy and Tencent Cloud. WorkBuddy paid users and MaaS gross margin already match the cloud overall; cloud revenue growth accelerated from about 18 per cent to 21 per cent as GPU rental, model services and token income rose. The AI product spend rising from 8.8 billion to 10.5 billion yuan tracks WorkBuddy’s user surge, which drew resources away from other AI products.
Xiaowei, still in grey test
WorkBuddy chases AI commercialisation in productivity; Xiaowei, the WeChat assistant still in grey test, chases something larger, turning WeChat from an app users tap into an agent ecosystem that understands commands, dispatches services and completes transactions. Lau argued this amplifies the ecosystem’s value rather than merely shifting existing transactions, likening it to how WeChat multiplied value through payments, accounts and mini-programs.
Xiaowei runs on WeLM, Tencent’s own model built for privacy, WeChat fit and inference efficiency, deliberately distinct from the Hunyuan flagship. Lau sees inference moving back to devices as phone and PC GPUs improve, with the cost burden shared across the hardware and software ecosystem rather than borne by model firms alone.
The cash cow speeds up
Behind the AI spend, the core cash cow re-accelerated. Games revenue reached 65.9 billion yuan, up 11 per cent, back to double-digit growth; domestic games rose 17 per cent to 47.3 billion yuan. Delta Force and Valorant hit record daily users; Peacekeeper Elite put an AI NPC in live play with 167 million cumulative users. AI is already in the production and operations loop, lifting content density and lowering long-run cost.
For now Tencent stock is down 26 per cent year to date, about 30 per cent off its 52-week high. The market’s question is not whether Tencent can do AI, but how much, how long, and who pays. Management’s answer: bounded, backed by a fallback, dynamically sized. If the worst case arrives, the new compute can be rented out and turn a profit. The bet is that WorkBuddy becomes a real platform, Xiaowei reshapes WeChat, and Hunyuan holds the front rank.
Editor’s note: This is an adapted translation of the original Sohu report. It has been trimmed and restructured for readability for an international business audience.