# Tencent's Ad Business Booms on AI But Profit Falls Short of Estimates > Source: > Published: 2026-08-12 09:58:39+00:00 *Tencent's ad business is already cashing in on AI. Its profit is still absorbing the bill for building it.* Tencent Holdings gave investors the cleanest version of the AI trade on Wednesday: the technology is already helping sell ads, but it isn't cheap to build. The company reported second-quarter revenue of 204.8 billion yuan, up 11% from a year earlier, and net profit of 56.02 billion yuan, according to The Wall Street Journal. Analysts had expected 58.51 billion yuan in net profit. That's the story. Strong sales. A profit miss. Marketing services, Tencent's advertising unit, grew 18.1% from a year earlier. MarketWatch noted that the division benefited from AI-enhanced targeting and automated campaign tools, which is exactly where Tencent should be getting early returns. WeChat Moments, Video Accounts and mini-programs already give the company a huge pool of user behavior to work with. Add better ad matching on top of that, and advertisers have a reason to spend more. Gaming helped too. The Wall Street Journal reported that Tencent's domestic gaming revenue rose 17%, supported by deferred revenue from earlier strong performance. That matters for a simple reason: Tencent's old cash engines are still running while the company builds the new one. ## Now comes the bill Profit is a different animal. Capital expenditure reached 52.8 billion yuan in the quarter, up 176% from a year earlier, according to MarketWatch. That is the cost of servers, chips and data center capacity, not some abstract AI ambition sitting in a slide deck. Tencent is buying the infrastructure it needs to train and run Hunyuan, Hy3, WorkBuddy, Yuanbao and the AI tools it wants inside its own apps. Management had already warned investors this was coming. On Tencent's May earnings call, chief strategy officer James Mitchell said the company expected a substantial increase in capital expenditure, especially in the second half of 2026, as more China-designed ASICs became available month by month. Restricted Nvidia supply is not a side issue for Chinese tech companies. It's part of the bill. If you're an advertiser buying space on WeChat, the upside is visible earlier: sharper targeting and more automated campaigns, with a much better shot that your money finds the right user. If you're a Tencent shareholder, you're being asked to wait. The same AI spend that helps the ad business today still lands as depreciation, infrastructure cost and cash outflow before it shows up as durable profit. Spend now, hope to earn later. Tencent isn't the only company making that bargain. ## Alibaba has the same problem Alibaba's March-quarter revenue grew just 3%, and Bloomberg reported in May that the company recorded its first operating loss since early 2021 as AI spending weighed on its bottom line. Tencent looks better by comparison. Its ad and gaming businesses are still growing at double-digit rates, and its profit stalled rather than flipped negative. But the market has punished both companies for a similar reason. Investors don't want another proof point that Chinese tech giants are serious about AI. They have plenty of those. They want proof that AI revenue can outrun AI infrastructure costs. Tencent knows what evidence it wants to show next. Hy3, released on July 6, is a 295-billion-parameter mixture-of-experts model with 21 billion active parameters, according to Tencent's own announcement. The company said Hy3 has been adopted across WorkBuddy, CodeBuddy, Yuanbao, Marvis and ima, with API access through Tencent Cloud's TokenHub. Inside WeChat, Tencent has also begun testing Xiaowei, an AI assistant that lets users complete tasks by voice or text across mini-programs, with a wider third-quarter rollout reported by The Next Web. None of that fixes this quarter's profit miss. Here's the thing: Tencent's AI story is more convincing than a lot of the market gives it credit for, because it already has places to plug the technology in. WeChat is not a cold-start chatbot app. Video Accounts is not a science project. Tencent's ad business is already showing that AI can lift revenue where the company controls the user and the payment rail - inventory included. The harder test is cost. If AI-driven advertising growth keeps climbing while capex peaks, Tencent will look early rather than reckless. If spending rises every time revenue improves, shareholders will be staring at better products and thinner cash flow at the same time. That's the number to watch next. Not another model launch. Not another assistant demo. The fourth-quarter infrastructure bill will tell you whether Tencent's AI payoff is starting to catch the cost of building it. **Also read:** [How Does AI Agent Memory Actually Work, And Why Investors Are Betting Big On It](https://startupfortune.com/how-does-ai-agent-memory-actually-work-and-why-investors-are-betting-big-on-it/) • [How AI Browser Agents Are Changing What Startups Build Instead of Websites](https://startupfortune.com/how-ai-browser-agents-are-changing-what-startups-build-instead-of-websites/) • [Foxconn's Profit Keeps Beating Forecasts as AI Server Demand Refuses to Cool](https://startupfortune.com/foxconns-profit-keeps-beating-forecasts-as-ai-server-demand-refuses-to-cool/)