Source | Bohu Finance (bohuFN)

Recently, China's internet titans Alibaba and Tencent have unveiled their financial results, revealing a stark contrast: Alibaba is aggressively expanding, while Tencent is maintaining a steady course.

The financial report reveals that in the first quarter, Tencent achieved a revenue of RMB 196.46 billion, marking a 9.1% year-on-year increase. Its adjusted net profit reached RMB 67.91 billion, up 11% year-on-year, with gross profit hitting RMB 111.3 billion and gross margin further improving to 57%. Despite this profitability, its stock price has dipped—entering 2026, Tencent's stock price dropped from a peak of HKD 631 per share to HKD 449.2 per share at the time of writing.

The challenge also stems from expectations surrounding AI.

At Tencent's shareholders' meeting, Pony Ma candidly described Tencent's current AI stance: 'A year ago, we believed we had embarked on the AI journey, only to discover our vessel was leaking. Now, we find ourselves standing on it, yet unable to relax—we're eager for the ship to pick up speed.'

Meanwhile, Tencent President Martin Lau noted, 'We cannot simply apply internet logic to AI.' He elaborated, 'In the internet realm, the marginal cost of delivery is minimal, allowing for boundless expansion. However, in AI, serving each daily active user (DAU) incurs significant costs.'

Is restraint, slowness, and caution still the prudent approach in the AI era?

01 Full-Scale Acceleration in AI Investment

In the first quarter of this year, Tencent has already ramped up its AI investments.

According to the Q1 2026 financial report, Tencent's capital expenditure soared to RMB 31.9 billion, a 16% year-on-year increase, setting a new single-quarter record. For context, Tencent's total capital expenditure in 2025 was RMB 79.2 billion.

This indicates that Tencent's Q1 capital expenditure already accounts for roughly 40% of last year's total, fulfilling the management's earlier commitment to significantly boost capital expenditure in 2026.

Furthermore, the company's R&D investment during this period reached RMB 22.54 billion, a 19% year-on-year increase. Sales expenses, primarily for promoting AI-native applications and new games, surged to RMB 11.3 billion, a 44% year-on-year jump. Combined, these three expenditures exceeded RMB 65 billion, essentially consuming all of Tencent's Q1 profits.

Beyond increased investment, during the 2025 financial results conference call, Liu mentioned that Tencent had faced supply shortages for an extended period and had thus reduced external sales to prioritize securing its own computational power supply.

In 2025, Tencent Cloud achieved profitability for the first time. Despite this milestone, Tencent did not rush to monetize its computational power but instead prioritized its AI strategy, showcasing its determination and patience in AI investment.

Tangible results are now surfacing.

Tencent's investments in foundational models are beginning to pay off. Tencent President Martin Lau revealed during the financial results conference call that just two weeks after its launch, Hunyuan 3.0 topped global charts with a weekly call volume of 3.03 trillion tokens.

Tencent's WorkBuddy, an AI agent designed to enhance workplace productivity, has become China's most popular efficiency tool. Existing products like Yuanbao, IMA, QQ Browser, and Sogou Input Method have also undergone AI upgrades, forming a comprehensive AI product matrix catering to both consumer (C-end) and business (B-end) markets.

AI is also starting to contribute to Tencent's core business revenue.

In Q1 2026, Tencent's marketing services revenue grew by 20% year-on-year to RMB 38.2 billion, accelerating from the 17% growth in Q4 2025.

This growth was primarily driven by AI-powered ad recommendation models. Currently, Tencent's marketing AIM+ intelligent ad matrix enables advertisers to allocate about 30% of their ad spend through it, while total user engagement time on WeChat Channels grew by over 20% year-on-year.

Fintech and enterprise services revenue increased by 9% year-on-year to RMB 59.9 billion. Among them, enterprise services revenue surged by 20% year-on-year, with Tencent attributing part of this growth to increased demand for AI services driving cloud revenue.

However, value-added services, which constitute the majority of revenue, totaled RMB 96.1 billion, a mere 4% year-on-year increase—significantly slower than the 14% growth in Q4 last year—mainly due to sluggish growth in domestic gaming.

Yet, AI remains a key focus in gaming as well. The AI NPCs in Peacekeeper Elite have been experienced by 110 million users, while Honor of Kings' AI-generated 'Voice Lingbao' attracted over 10 million participants on its first day.

So, where does the market's concern lie?

02 Is Steadiness the Issue?

Compared to its past performance, Tencent has made significant strides. The problem is that its competitors have started sprinting.

On one hand, in 2026, tech giants like Google, Meta, Microsoft, Amazon, and OpenAI are expected to invest over USD 650 billion in AI infrastructure. Domestic rivals are not far behind—Alibaba reduced its operating profit by 64%, while rumors suggested ByteDance's profits plummeted by 70% last year (later denied).

On the other hand, competitors are achieving impressive results.

Anthropic's USD 30 billion in annualized recurring revenue speaks for itself. Meta leads in ad monetization, with Instagram's ad conversion rate up about 5% and Facebook's up about 3%, achieving a 2025 operating margin of 43%.

Alibaba also announced that its model and application services have surpassed RMB 8 billion in annualized recurring revenue, expecting to reach RMB 10 billion in June and RMB 30 billion by year-end. ByteDance dominates consumer (C-end) applications, while Volcano Engine captured half of the MaaS market with a 49.5% share.

Moreover, the trend of AI acceleration has become increasingly pronounced this year.

At the payment level, according to Citi data, China's C-end AI market has shifted from 'user scale competition' to 'willingness to pay validation'—45% of respondents are willing to pay for AI premium features, with an average acceptable monthly subscription price of RMB 48.3, higher than typical digital content subscriptions like music and video and comparable to online gaming spending. Meanwhile, Doubao leads the domestic AI app market with a 79% penetration rate and accounts for 63% of 'most frequently used products.'

At the foundational model research level, judging by the leaked Gemini Omni, an all-in-one full-stack model can now simultaneously comprehend spatial relationships (e.g., holding chalk), visual relationships (e.g., writing on a blackboard), and logical relationships (e.g., derivation processes). This suggests that by adhering to the Scaling Law and training a single foundational model for all modalities, a gradual path to a world model is feasible.

The tipping point for AI to disrupt the mobile internet may be quietly approaching, and compared to its peers, Tencent seems to lack a strong competitive edge.

The good news is, firstly, that current AI monetization paths are largely similar—paid subscriptions, ad monetization, SaaS services, and agent fees—none of which yet pose a threat to Tencent's status as a traffic gateway.

Tencent boasts two major gateways—WeChat and QQ—supported by 1.4 billion monthly active users and a comprehensive infrastructure of identity verification, payment systems, and B/G-end connectivity, which is unparalleled by other companies.

With its engineering prowess, Tencent could potentially achieve a late-mover advantage, as it has done in the past.

Secondly, Tencent has abundant resources.

In Q1, Tencent's Non-IFRS operating profit reached RMB 75.63 billion, a 9% year-on-year increase, with an operating profit margin of 38.5%, unchanged from last year. Excluding the impact of new AI products, Non-IFRS operating profit grew by 17% year-on-year to RMB 84.4 billion. Meanwhile, Tencent's free cash flow reached RMB 56.7 billion, a 20% year-on-year increase, while net cash at the end of the period stood at RMB 146.9 billion, a quarter-on-quarter increase of 37%. This means that even if AI investments double, Tencent's cash flow can sustain it.

Once a decisive trend emerges, Tencent can swiftly catch up by recruiting top AI talent and upgrading its AI infrastructure.

This is probably why, during the conference call, Liu emphasized, 'I’m not worried about entering late but about innovating slowly.'

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