For the first quarter, Tencent's Non-IFRS operating profit was RMB 75.63 billion. Excluding the impact of new AI products, this figure would have been RMB 84.4 billion. On May 13, TENCENT released its first-quarter 2026 financial results. Revenue for the quarter reached RMB 196.46 billion, a 9% year-on-year increase. Non-IFRS operating profit was RMB 75.63 billion, also up 9% year-on-year. "A year ago, we thought we had boarded the ship. Later, we found the ship was leaking. Now, we feel we are standing on it, but we cannot sit down yet. We still hope the ship can sail faster," said Pony Ma, Chairman and CEO of Tencent, when addressing questions about whether the company lags in AI during the shareholder meeting held on the same day. Tencent is making up ground in AI. "The reorganized AI R&D team has rebuilt the AI infrastructure and developed the Hy3 preview model, which leads in performance among models of comparable parameter scale," Ma stated in the earnings report. While betting on the future with AI, the AI investments have also impacted some of Tencent's financial metrics. Excluding the effect of new AI products, the company's Non-IFRS operating profit for the quarter would have increased by 17% year-on-year to RMB 84.4 billion.

What is the impact of AI? Tencent listed data for some key products in its report. In Q1, the combined monthly active accounts for Weixin and WeChat reached 1.432 billion, a 2% year-on-year increase. Monthly active accounts for QQ's mobile terminals were 516 million, down 3% year-on-year. Regarding models, since April 28, the Hy3 preview model has consistently ranked high on the token consumption leaderboard of OpenRouter, an AI model aggregation platform. Additionally, transaction volume for Mini Programs grew rapidly year-on-year this quarter, and several evergreen games achieved record-high gross billing. By business segment, Tencent's Value-Added Services revenue for Q1 was RMB 96.11 billion, up 4% year-on-year; Online Advertising revenue was RMB 38.171 billion, up 20%; and FinTech and Business Services revenue was RMB 59.885 billion, up 9%. Within Value-Added Services, domestic games revenue was RMB 45.4 billion, a 6% increase, while international games revenue was RMB 18.8 billion, up 13%. Social networks revenue decreased by 2% year-on-year to RMB 31.9 billion, primarily due to the later timing of the Spring Festival holiday compared to the previous year, leading to a decrease in recognized revenue from in-app purchases for domestic mobile games. From the information disclosed, while AI has driven more revenue for some businesses, it has also increased certain costs and affected the gross profit of some segments. In Online Advertising, Tencent upgraded its AI-driven ad recommendation model this quarter, enhancing ad performance. For cloud services, increased demand both domestically and internationally, including for AI-related services, along with a more favorable pricing environment, contributed to revenue growth in this segment. Regarding gross profit, Tencent's gross margin for the quarter was 57%, a 1 percentage point increase year-on-year, with gross profit up 11% year-on-year. However, the gross profit of the Value-Added Services and FinTech and Business Services segments was partially offset by increased depreciation and operating costs related to AI equipment. Furthermore, sales and marketing expenses for the quarter were RMB 11.3 billion, a 44% year-on-year increase, mainly due to heightened promotional efforts to support AI-native applications and games development. A decrease in share-based compensation expenses this quarter offset most of the R&D expense growth driven by AI investments, keeping general and administrative expenses largely stable year-on-year. Tencent made significant investments during the Spring Festival AI red envelope campaign in Q1. Capital expenditure for the first quarter reached RMB 31.936 billion, up 16% year-on-year and 63% quarter-on-quarter. Free cash flow for the quarter was RMB 56.7 billion, reflecting net cash generated from operating activities of RMB 101.4 billion, partially offset by capital expenditure payments of RMB 37 billion, among other items. The RMB 37 billion in capital expenditure payments was primarily used to support AI-related investments. Cash and cash equivalents at the end of Q1 stood at RMB 217.77 billion, a 6% year-on-year increase.

Improved Computing Power Supply Expected At the shareholder meeting, when discussing AI development, Ma expressed hope that "the ship can sail faster." He stated that Tencent may not be the fastest in the industry to seize opportunities but is steadily advancing by leveraging its own strengths, avoiding the approach of "seeing others doing something and hastily jumping in to grab territory." A shareholder who attended the meeting noted that the focus was squarely on AI, with management also discussing the outlook for the rollout pace of Hunyuan. During the earnings call following the Q1 report, Tencent executives provided more details on the company's deployment and outlook in the AI field. Executives stated that Tencent has made significant progress in large language models over the past six months. The company's foundational model team has been reorganized, and new talent, including many top AI researchers and engineers, has recently joined. The next step involves scaling the models to larger sizes and enhancing general AI capabilities in areas like coding. Tencent is also considering integrating Hunyuan with WeChat workflows, a process that will be gradual. Executives indicated that capital expenditure will increase going forward. Tencent Cloud has consistently lacked sufficient GPU resources to meet all external customer demands, which has impacted its ability to gain more revenue and market share. "Tencent Cloud has not actively leased out GPU capacity to ensure internal use," an executive said. However, more domestic chips are expected to be deployed in the second half of this year. It is anticipated that as the supply of domestic GPUs and ASICs gradually increases, the computing power supply situation will improve. "Domestic GPU and ASIC computing power has been very tight, but this issue is now being gradually resolved as domestic wafer fabs are supplementing production capacity," the executive noted. Regarding CPUs and networking chips, the company has not encountered additional artificial restrictions and maintains long-term cooperative relationships with suppliers. How AI investments will translate into revenue and the monetization timeline were key topics for analysts on the earnings call. Tencent executives responded that investments in AI are viewed across short and long cycles. The company does not manage each related product on a quarterly basis but reviews them based on portfolio and lifecycle considerations. For example, deploying purchased GPUs for advertising technology represents a relatively short-cycle investment, as these GPUs can quickly improve ad targeting precision and click-through rates, driving near-term revenue and profit growth. Using GPUs for the Hunyuan large model, however, is considered from a longer-term perspective. "Initially, we offer services for free, gradually generating revenue over time. In the AI field, we must seek 'high-value use cases' and not just focus on daily active users," an executive stated. Monetization is still in a relatively early stage, with leading companies yet to introduce very mature monetization models. A long-term view is necessary to explore what complementary models might exist beyond subscriptions.