Tencent (00700) fell more than 4% during intraday trading, and as of the time of writing, it was down 3.76% to HK$439.8, with a turnover of HK$96.02 billion.

According to Tencent's financial report, the company's second-quarter revenue reached 204.785 billion yuan, up 11% year-on-year, surpassing the 200 billion yuan mark for the first time. However, capital expenditure surged to 52.784 billion yuan, a year-on-year increase of 176% and a quarter-on-quarter increase of 65%, significantly exceeding market expectations of 32.1 billion yuan. Meanwhile, free cash flow turned negative, recording a deficit of 13.8 billion yuan.

Based on preliminary calculations, the company's second-quarter capital expenditure was nearly three times the 19.1 billion yuan recorded in the same period last year. The first-half total reached 84.72 billion yuan, already exceeding the full-year 2025 capital expenditure forecast of 79.2 billion yuan.

Where to Begin

CICC released a research report noting that the market is concerned about the impact of massive capital expenditure on EPS. However, the firm believes that management has indicated capital expenditure will be concentrated between 2026 and 2027. Training computing power is considered a fixed cost, while inference computing power will be invested dynamically based on returns, which ensures a floor on ROI and a ceiling on the years of significant capital expenditure. The firm is optimistic about Workbuddy's ability to capture the mindshare of China's domestic AI office sector, citing rapid recent user growth. They believe that its user and data advantages could feed back into enhancing Hy's foundational model capabilities. Additionally, the market is anticipating the public beta launch of WeChat Agent.