On August 13, TENCENT released its second quarter fiscal 2025 financial results and interim performance report.

The data shows that TENCENT's quarterly revenue increased 15% year-over-year to 180.5 billion yuan; operating profit rose 18% year-over-year to 69.2 billion yuan, both exceeding expectations. Operating profit margin increased to 38% compared to 36% in the same period last year.

From every perspective, this was TENCENT's most "AI-intensive" earnings release in history. When discussing each business segment, "how AI drives growth" was a key topic that TENCENT's management team focused on responding to during the earnings call.

AI's promotional effect was most evident in the "marketing services business," with revenue growing 20% year-over-year to 35.8 billion yuan. TENCENT's "value-added services business," primarily gaming, saw revenue increase 16% year-over-year to 91.4 billion yuan, accounting for over half of total revenue. TENCENT mentioned AI applications in gaming business such as AI-assisted players and AI-designed realistic NPC characters.

Additionally, the ToB-focused "fintech and enterprise services business" revenue grew 10% year-over-year to 55.5 billion yuan, with GPU cloud rental and API token usage growth constituting part of the growth drivers.

The secondary market responded positively to the strong performance. On August 13, TENCENT's stock price closed at 586 Hong Kong dollars per share, up 4.74%. This marked TENCENT's highest stock price since March 15, 2021.

**AI Becomes Advertising Growth Engine, Capital Expenditure Doubles Year-Over-Year**

In the first quarter, TENCENT was more cautious when discussing AI's business empowerment capabilities. During the Q1 earnings call, when topics like user behavior captured by Tencent Yuanbao and AI's specific business empowerment were mentioned, TENCENT spokespersons frequently emphasized phrases like "still in very early stages" and "it's still too early to systematically analyze user behavior."

In contrast, TENCENT now displays a more confident stance. In the second quarter, TENCENT's marketing services business revenue grew 20% year-over-year to 35.8 billion yuan. When answering media questions, Chief Strategy Officer James Mitchell specifically explained how AI technology applications drove advertising business revenue growth.

James stated that advertising revenue growth is highly correlated with click-through rates, traffic, revenue per click, and ad load rates, and "in the second quarter, our advertising revenue growth mainly came from improvements in 'revenue per impression.'" This was attributed to AI technology applications bringing higher click-through rates and increased revenue per click by facilitating more closed-loop transactions in mini-programs and mini-games.

He also noted: "We are currently satisfied with the growth rate we've achieved (in advertising). Our strategy remains unchanged in the short term, continuing to focus on building a solid foundation for future growth."

From the returns perspective, AI has begun promoting TENCENT's performance growth in multiple ways; however, the heavy investment on the input side cannot be ignored, making computing power investment and other cost items noteworthy topics.

In Q2 2025, TENCENT's capital expenditure was 19.1 billion yuan, an increase of 119% year-over-year. Operating capital expenditure was 17.9 billion yuan, up 149% year-over-year, mainly used to increase GPU and server investments to enhance AI capabilities; non-operating capital expenditure was 1.2 billion yuan, down 20% year-over-year.

This recalls Martin Lau's statement in an interview earlier this year that, based on 2024's total capital expenditure of 76.76 billion yuan creating a historical high, "TENCENT plans to further increase capital expenditure in 2025, expected to account for 'low double-digit percentage' of 2025's total revenue."

For internet companies entering the full chain from foundational model development to toolchain and application development, annual capital expenditure exceeding tens of millions has almost become a "mandatory option."

As a comparison, in January this year, market sources indicated that ByteDance planned to achieve over 150 billion yuan in capital expenditure in 2025, with more than half for AI fields and about half of the budget invested overseas for AI-related infrastructure construction. This news was later responded to by ByteDance as "inaccurate information," though analysts estimate that ByteDance's capital expenditure in AI fields reached 80 billion yuan in 2024.

Additionally, early this year, Alibaba Group CEO Eddie Wu announced that over the next three years, the company would invest more than 380 billion yuan to build cloud and AI hardware infrastructure, exceeding Alibaba's total investment over the past decade.

During the earnings call, TENCENT President Martin Lau responded to cost control questions: "We are currently quite meticulous about cost control for AI services. In many scenarios, if we can use small models, we adopt small models, which cost much less than large models. In scenarios where small models can be used, and after continuous software efficiency upgrades, overall inference costs remain controllable."

**Traffic War Enters 2.0 Phase: How Can "Latecomer" Yuanbao Break Through**

AI technology has begun promoting growth in multiple TENCENT ToB businesses, but how to expand growth space through ToC services like Yuanbao still lacks a standard answer.

As a party that was cautious and slower to act in large model market competition, TENCENT only began frequent promotional activities after entering 2025.

Early in the year, by integrating with DeepSeek, TENCENT's native AI service "Yuanbao" completed a impressive public debut and continued vigorous promotional follow-up actions, once reaching the top of app download charts.

Entering the second quarter, Yuanbao enhanced its presence by embedding into various WeChat functions like chat and search, while continuing the traffic investment operations familiar to internet players.

According to AppGrowing statistics, Tencent Yuanbao App's advertising investment level in Q2 remained roughly consistent with Q1, with Tencent Advertising as the main traffic platform. Its single-quarter advertising creative count reached 1.183 million, with monthly investment amounts exceeding 1 billion yuan in both June and July.

This is reflected in the financial report: in Q2 2025, TENCENT's sales and marketing expenses were 9.41 billion yuan, accounting for 5% of expenses, up about 20% quarter-over-quarter and about 2% year-over-year.

However, as the dividend period from binding with DeepSeek gradually passes, the return rate from heavy traffic investment has begun to decline.

QuestMobile's China Mobile Internet Strength Value Rankings for the first half of 2025 shows that although DeepSeek, Doubao, and Tencent Yuanbao ranked as the top three AI native app growth leaders, comparing June 2025 to January, the user scale increases for DeepSeek, Doubao, and Tencent Yuanbao were 163 million, 58 million, and 22 million respectively, with Yuanbao ranking last.

For web versions, SimilarWeb data shows that over the past three months, Tencent Yuanbao's web version maintained steady weekly visits around 5 million, still showing gaps compared to DeepSeek and Doubao (web versions).

As the DeepSeek effect wanes, heavy traffic investment alone is insufficient to help TENCENT "break through" from strong competitors like Doubao and Quark. Yuanbao still faces challenges in improving product value and user stickiness.

During the earnings call, Martin Lau stated that the company doesn't plan to "simply spend money on market investment to acquire new users," but instead plans to "deeply integrate Yuanbao with our existing platforms... In the coming months, we will continuously deepen this integration while appropriately increasing product marketing efforts."

During the earnings call, TENCENT also responded to questions about ToC AI services' profit models, stating that C-end payment models still need exploration, but considering that "AI is already giving back to TENCENT's performance growth, other businesses can partially subsidize costs generated by current AI C-end users."

Regardless, Q2's strong AI empowerment of advertising and other businesses provided a shot in the arm for market sentiment. However, how TENCENT's heavy AI investment will be monetized and how Yuanbao will achieve deeper integration with the WeChat ecosystem still requires exploration.

Whether TENCENT can successfully play the Yuanbao card on the product side will be the key question determining TENCENT's position in the AI market.