TENCENT (00700) shares opened more than 3% lower following its earnings release, trading down 3.29% at HK$446.4 as of press time, with a turnover of HK$697 million.

On August 12, TENCENT reported its second-quarter results for the 2026 fiscal year. In the second quarter, the company's revenue reached 204.785 billion yuan, up 11% year-on-year and 4% quarter-on-quarter. Net profit rose 0.7% year-on-year to 56 billion yuan, missing market expectations. Non-IFRS operating profit stood at 75.636 billion yuan, a 9% increase year-on-year, flat compared to the previous quarter. For the first half of the year, TENCENT generated 401.243 billion yuan in revenue, a 10% increase year-on-year, while Non-IFRS operating profit reached 151.263 billion yuan, up 9%.

Notably, upfront investments in AI infrastructure drove free cash flow into negative territory. In the second quarter, TENCENT's capital expenditure hit 52.8 billion yuan, up 65% from 31.9 billion yuan in the first quarter. Free cash flow turned negative to -13.8 billion yuan, marking the first time since 2005 that the company has reported negative free cash flow. The company stated that excluding a 37.6 billion yuan prepayment for computing power, net cash decreased from 146.9 billion yuan in the first quarter to 58.1 billion yuan.