Tencent says it could make instant profits on $53bn hardware splurge by renting it for AI workloads

Plans to build models instead because it thinks selling tokens will prove more lucrative in the long term

Chinese tech giant Tencent has turned its back on instant profits, betting that a new business unit that creates its own AI and embeds that in its products will pay off to a greater extent than cashing in on demand for computing resources.

During the company’s Q2 earnings call yesterday, Bernstein analyst Robin Zhu asked when Tencent expects to see a return on investment from the $53 billion capital expenditure it made in the quarter.

Chief Strategy Officer James Mitchell said demand for compute resources is so strong that Tencent could recover its depreciation costs “almost immediately” if it rented its infrastructure.

Company president Martin Lau said if Tencent behaved like a neocloud it would “achieve a decent return in an immediate timeframe” as the company has offers for its compute capacity “at more than 30 percent profit compared to the price that we paid just a few months ago.”

Lau said Tencent is instead “playing a different game or executing a larger strategy in that we are allocating a very substantial proportion of the new compute to building our own models to state-of-the-art status, and also to deploying, popularizing, and bringing our own AI applications to market leadership in China.”

He said Tencent believes that if Tencent can provide “superior intelligence that we can achieve through state-of-the-art models, through market-leading AI applications … we can then convert into superior economic returns over the longer term.”

Those returns will come from selling tokens for services like WorkBuddy, which Tencent says is an agent swarm that can “plan, execute, and run tasks in parallel, handing back complete deliverables end-to-end in one flow.” Tencent also offers CodeBuddy, a code generation tool that Mitchell said is accelerating cloud migration projects and therefore creating more business for Tencent cloud.

Tencent released its latest model, the 295-billion open-weight Hunyuan-3 in July. Lau described it as “a very small model” and promised that the forthcoming Hunyuan-4 will be bigger – and more capable than larger models from other companies. He also said Tencent is designing its products specifically to work with Hunyuan-4, and that mutual optimization will make those products more powerful than would be the case if they relied on other models.

The company also plans a fifth version of Hunyuan, and Lau said at some point Tencent will deliver a state-of-the-art model.

Tencent is already producing thoroughly modern results for a tech giant: Revenue for Q2 grew 11 percent to reach $30.3 billion. Net profit rose nine percent to $10.3 billion.

The company’s flagship messaging apps, Weixin and WeChat, saw average monthly active users rise seven million to 1.349 billion. Advertising-related revenue rose 22 percent, and the company’s gaming biz grew 17 percent in China alone.

Investors aren’t sure what to make of this. The company’s share price has trended down since Wednesday and dipped around three percent since the company’s earnings announcement. ®