Tencent Holdings missed first-quarter revenue estimates amid gaming sales slowdown but reinforced its commitment to artificial intelligence as a new engine for growth, with increased capital expenditure and foundational AI model advances.
- Q1 revenue reached 196.5 billion yuan, missing estimates
- New AI model Hy3 preview released, topping OpenRouter leaderboard
- Capital expenditure surged 63% QoQ to boost AI chip and cloud capacity
What happened
Tencent reported first-quarter revenue of 196.5 billion yuan, increasing 9% from the previous year but falling short of analyst estimates of 199.4 billion yuan. Net income met consensus projections. Revenue growth in the gaming segment slowed due to a late Chinese New Year, shifting some sales into the next quarter.
Despite the revenue miss, Tencent made significant strides in artificial intelligence. It unveiled Hy3 preview, its first flagship foundational AI model developed under new leadership. Since its April launch, Hy3 quickly ranked highest in token usage on the OpenRouter platform, demonstrating accelerated AI capabilities.
Why it matters
These results highlight Tencent’s transitional phase, balancing short-term pressures from softer gaming growth with aggressive investments in AI, which it views as a core driver for future expansion. CEO Pony Ma acknowledged past missteps in AI development but expressed confidence in the company’s current direction.
Tencent’s capital expenditure jumped 63% quarter-on-quarter to 31.9 billion yuan, focused largely on acquiring and developing China-designed AI chips. This investment boost is critical as Tencent seeks to enhance its computing infrastructure for both AI model scaling and cloud service customers, underpinning long-term growth prospects.
What to watch next
The company aims to scale up Hy3 by developing larger AI models, leveraging its revamped pre-training and reinforcement learning systems to improve capabilities. Continued progress in AI product launches and integration into core businesses will be key indicators of Tencent’s ability to pivot successfully.
On the commercial front, growth in Tencent’s marketing services, fueled by AI-driven ad targeting, and its fast-expanding cloud business, especially internationally, will be critical to watch. Increased computing capacity and chip availability in the second half of 2026 will provide momentum to these areas and help Tencent regain stronger revenue momentum.