Tencent delivered stronger-than-expected second-quarter revenue as a rebound in its domestic gaming business and continued growth in AI-powered advertising helped lift the Chinese technology giant’s performance.
However, the company’s profit fell short of analysts’ expectations, while a sharp increase in capital expenditure underscored the scale of Tencent’s investment in artificial intelligence and computing infrastructure.
Tencent reported revenue of 204.78 billion yuan ($30.36 billion) for the quarter, compared with the 202.17 billion yuan expected by analysts surveyed by LSEG.
Net profit came in at 56 billion yuan, below the 61.82 billion yuan forecast.
Revenue increased 11% year-on-year, while reported profit rose by nearly 1%. On an adjusted basis, excluding one-time factors and certain non-cash items, Tencent said profit reached 68.4 billion yuan, representing a 9% increase from a year earlier.
Domestic Gaming Rebounds
Gaming provided one of the strongest sources of growth during the quarter, with Tencent’s domestic games business generating 47.3 billion yuan, up 17% year-on-year.
The company attributed the acceleration to popular titles including Delta Force and Valorant PC and Mobile. The performance marked a significant improvement from the 6% growth recorded by the division in the first quarter and matched the growth rate achieved in the second quarter of 2025.
Tencent’s gaming performance is closely watched by investors because the company remains one of the world's largest game developers and publishers, with substantial operations in both China and international markets.
Its international gaming business, however, recorded a 0.8% year-on-year decline in reported revenue, which Tencent attributed to currency movements. On a constant-currency basis, international gaming revenue increased 4%.
AI Spending Surges
While gaming and advertising supported revenue growth, Tencent is increasingly directing resources toward artificial intelligence, putting pressure on spending.
Capital expenditure jumped 65% from the previous quarter to 52.8 billion yuan as the company increased investment in computing infrastructure needed to develop and operate its AI models and applications.
Tencent said the increased spending was aimed at expanding its computing capacity and eventually turning higher usage of its AI products into additional revenue.
“At the infrastructure level, we substantially stepped up our procurement of compute, which will enable us to convert usage of our applications and models into revenue going forward,” Tencent said.
The increased investment comes as competition in China's AI market intensifies, with Tencent competing against established technology companies such as Alibaba as well as fast-growing AI developers including DeepSeek and Moonshot AI, the company behind the Kimi models.
AI Boosts Advertising Business
Advertising was another major contributor to Tencent's quarterly performance.
Revenue from its marketing services division rose 22% year-on-year to 43.6 billion yuan, helped by improvements to its AI-powered advertising recommendation system.
The technology uses artificial intelligence to determine which advertisements are most relevant to users across Tencent's platforms, including WeChat, allowing the company to make greater use of its enormous user base.
Tencent has also been expanding its AI offerings within WeChat, China's dominant messaging platform. The company said it recently began a “small-scale prototype test” of an AI assistant called Xiaowei in China.
Tencent has also introduced Hy3, its latest AI model, and subsequently expanded its availability internationally.
Investors Watch Spending
Despite the stronger revenue performance, Tencent's shares have faced pressure as investors assess whether the company's growing AI expenditure will translate into sufficient returns.
The stock was down 26% year-to-date at Wednesday's close in Hong Kong, reflecting concerns over intensifying competition in China's AI sector, rising investment costs and a slowdown in gaming growth earlier in the year.
The latest results nevertheless showed improvement across Tencent's major businesses, with the company reporting higher gross profit in each of its main divisions.
The challenge for Tencent now is to convince investors that its heavy investment in AI infrastructure can generate sustainable growth and ultimately justify the billions of yuan being committed to the technology.