Tencent's Q1 Revenue Surges 13% on AI-Driven Growth

Tencent, one of China's leading technology conglomerates, held its first-quarter earnings call, revealing that its AI capabilities have significantly enhanced its advertising, gaming, and cloud services. The company reported a 13% year-over-year increase in revenue, reaching 180 billion yuan, with adjusted net profit growing by 11%.

Tencent CEO Pony Ma highlighted that the company's high-quality revenue maintained a solid growth momentum in the first quarter. AI has made substantial contributions to areas such as effect-based advertising and long-term games, with increased investment in new AI opportunities like "Yuanbao" within the WeChat ecosystem.

The integration of AI has been evident in three key areas: improved ad precision and user engagement, enhanced game participation, and increased cloud revenue through infrastructure, APIs, and comprehensive solutions. Tencent plans to increase its capital expenditure and operational costs in AI, particularly in areas like ad targeting and effectiveness, where AI can improve ad content, content recommendations, and user engagement time, ultimately boosting ad revenue.

Tencent's high-level executives mentioned that the company has sufficient GPU reserves and that these chips will be prioritized for applications that can generate immediate returns, such as ad placement and content recommendations. Large model training, which typically requires higher-end chips, is considered a second priority. Tencent's current GPU inventory is adequate for training multiple generations of models, as smaller cluster sizes have proven effective. For inference, Tencent has multiple strategies, including software optimization, model customization and distillation, and diversifying chip sources to ensure compliance and efficiency.

Tencent's Chief Strategy Officer James Mitchell noted that AI has the potential to significantly increase ad revenue. Historically, banner ad click-through rates were around 0.1%, while feed ads had a 1% rate. With AI, certain ad inventories have seen click-through rates rise to 3.0%. This indicates that AI can enhance ad effectiveness and user engagement, leading to higher ad revenue.

Tencent's gaming business showed strong performance in the first quarter, with domestic games benefiting from a low base in the previous year. The company's strategic adjustments to core games, AI enhancements in large-scale competitive games, and the shift towards first-person shooter games have contributed to this growth. Tencent's total revenue from games is expected to continue growing, supported by these strategic initiatives.

Tencent's total revenue for the first quarter of 2025 was 180 billion yuan, with a 13% year-over-year increase. The company's gross profit was 100.5 billion yuan, up 20% year-over-year. Operating profit reached 57.6 billion yuan, a 10% increase. Net profit attributable to shareholders was 61.3 billion yuan, up 22% year-over-year. The company's free cash flow was 47.1 billion yuan, down 9% year-over-year due to increased capital expenditure on GPUs and servers, but up 9.5 times quarter-over-quarter due to seasonal game revenue and payment timing differences.

Tencent's capital expenditure for the quarter was 27.5 billion yuan, up 91% year-over-year, primarily due to increased investment in GPUs and servers to enhance AI capabilities. The company's cash balance was 90.2 billion yuan, up 17% quarter-over-quarter, driven by seasonal game revenue and offset by capital expenditure and stock buybacks.

Tencent's gaming business, particularly in the first-person shooter genre, has shown strong performance. Games like "Peacekeeper Elite," "CrossFire Mobile," "Call of Duty Mobile," "Valorant," and "Triple Action" have contributed to this growth. Tencent's strategic focus on these games, along with AI enhancements, has driven user engagement and revenue.

Tencent's cloud services, including AI-related revenue, have seen rapid growth due to increased demand for GPUs, APIs, and platform solutions. However, this growth has been constrained by GPU supply shortages. Tencent's total revenue from cloud services was 55 billion yuan, up 5% year-over-year, with financial technology services contributing to this growth.

Tencent's advertising revenue grew by 20% year-over-year to 32 billion yuan, driven by increased user activity, AI upgrades to the ad platform, and enhanced transaction capabilities within the WeChat ecosystem. The company's AI-driven ad solutions, including generative AI for ad creation and video editing, have improved ad efficiency and effectiveness.

Tencent's gaming business has benefited from AI enhancements, particularly in large-scale competitive games. The company's strategic focus on first-person shooter games has driven user engagement and revenue growth. Tencent's total revenue from games is expected to continue growing, supported by these strategic initiatives.

Tencent's cloud services, including AI-related revenue, have seen rapid growth due to increased demand for GPUs, APIs, and platform solutions. However, this growth has been constrained by GPU supply shortages. Tencent's total revenue from cloud services was 55 billion yuan, up 5% year-over-year, with financial technology services contributing to this growth.

Tencent's advertising revenue grew by 20% year-over-year to 32 billion yuan, driven by increased user activity, AI upgrades to the ad platform, and enhanced transaction capabilities within the WeChat ecosystem. The company's AI-driven ad solutions, including generative AI for ad creation and video editing, have improved ad efficiency and effectiveness.