Tencent Holdings Limited

Q2 2026 total revenue was RMB 204.8 billion, up 11% year-on-year. Gross profit was RMB 118.4 billion, up 13% year-on-year. Operating profit was RMB 67.3 billion, and on a non-IFRS basis operating profit was RMB 75.6 billion, up 9%; excluding new AI products, non-IFRS operating profit was RMB 86.1 billion, up 19%. Non-IFRS net profit attributable to equity holders was RMB 68.4 billion, up 9%, and diluted EPS was RMB 7.433, up 9%. Gross margin was 58%, up 1 percentage point year-on-year. For the quarter, sales and marketing expense was RMB 11.9 billion, R&D was RMB 27.2 billion, operating CapEx was RMB 51.8 billion, free cash flow was negative RMB 13.8 billion, and net cash position was RMB 58.2 billion. Management did not give formal next-quarter or full-year financial guidance, but said AI CapEx is being made in a lump sum this year and next year, while existing core businesses remain cash-generative.

Pony Ma framed the quarter as progress toward a “new AI-empowered Tencent” across models, applications and infrastructure. He highlighted Hunyuan 3’s strong cost performance, WorkBuddy and CodeBuddy’s user growth, and the rollout of more compute to convert usage into revenue over time. His tone was upbeat and strategic, emphasizing that AI is being built alongside solid performance in marketing services, games and Weixin video accounts.

John Lo detailed the financial bridge: RMB 204.8 billion revenue, RMB 118.4 billion gross profit, RMB 68.4 billion non-IFRS net profit, and diluted EPS of RMB 7.433. He noted gross margin of 58% and said VAS margin rose to 64% on mix, while marketing services margin was 57% and FinTech/business services margin was 52%. He also highlighted the spending surge: operating CapEx of RMB 51.8 billion was up 190%, free cash flow was negative RMB 13.8 billion because of AI infrastructure capex and prepayments, and net cash fell to RMB 58.2 billion after RMB 59.3 billion of capex payments and RMB 41.6 billion of 2025 dividend payments.

Analysts focused heavily on whether the large AI CapEx will pay back, how to think about depreciation and time lags, and whether Tencent might prioritize cloud monetization more aggressively. Management said compute could be rented out profitably almost immediately, but Tencent is choosing to use much of it to build its own models and applications, especially WorkBuddy, because that has the highest long-term value. On Xiaowei, they described an agent-to-agent future inside Weixin but said the rollout will be phased and cost-controlled; on advertising, they said growth can fluctuate, but AI targeting, video accounts engagement and more closed-loop ads should support outperformance versus the market.