Another AI lab is burning through cash as Tencent earnings rise

By Steve Goldstein

Tencent said second-quarter revenue rose 11%.

It's not just American artificial-intelligence companies burning through cash as they roll out ever-more advanced models.

Shenzhen, China-based Tencent (HK:700), which according to OpenRouter has the second-most used large language model this week, said its capital expenditure surged 176% year-on-year, to 52.8 billion yuan ($7.8 billion), in the second quarter.

That's as it burned through 13.8 billion yuan in cash during the second quarter, taking its net cash down to 58.2 billion yuan from 146.9 billion yuan in the first quarter, on both the capital expenditure as well as dividend payments.

Tencent said its adjusted profit rose 9% to 68.42 billion yuan, as revenue rose 11% to 204.79 billion yuan.

According to Visible Alpha, analysts had expected a 68.26 billion yuan profit on revenue of 202.66 billion yuan.

Tencent said it's making "substantial progress" toward being AI-empowered, through its Hy3 LLM, WorkBuddy AI office productivity service and Core Buddy AI coding tool.

The operator of the WeChat service said its largest division, value-added services, saw 14% gross profit growth on 8% revenue growth, helped by high-margin internally developed games, while marketing services - i.e., advertising - was boosted by enhancements to its AI-driven ad recommendation models and upgrades to its automated campaign management system.

Tencent stock fell 2% in Hong Kong ahead of the results. The stock has slumped 23% this year.

-Steve Goldstein

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08-12-26 0530ET