GoKawiilChinese tech company Tencent is a gaming giant and the parent company of WeChat, the ubiquitous social messaging app in China.
Tencent on Wednesday posted a surge in spending in the second quarter, with executives touting the potential of "superior" returns on the company's investment in China's cut-throat AI market.
The company said capital expenditures for the June quarter rose 65% to 52.8 billion yuan ($7.8 billion) from the previous quarter, as it continues to ramp up buying and building computing infrastructure to monetize its AI models. The company said its free cash flow came in at negative 13.8 billion yuan in the quarter.
"At the infrastructure level, we substantially stepped up our procurement of compute, which will enable us to convert usage of our applications and models into revenue going forward," Tencent CEO Ma Huateng said in a statement accompanying the earnings release.
During the earnings call, most of the questions asked by analysts related to the potential return on Tencent's capex: a theme across this tech earnings season in the U.S. that is filtering through to China.
In response to one analyst's question, Chief Strategy Officer James Mitchell said the company could achieve a "decent return in an immediate timeframe" if the tech giant rented out all of its compute capacity.
Instead, Tencent is using some of the capacity to build "state-of-the-art" AI models and applications of its own, which Mitchell said would translate to "superior economic returns over the longer term."
Tencent also said on the earnings call that its cloud business grew at a rate of a "low-twenties" percentage thanks to AI demand and international expansion. The company said it was able to raise prices for Tencent Cloud customers.
Tencent stock was down 26% year-to-date at Wednesday's closing bell in Hong Kong, as the company faces intense competition in China in AI and investors grow jittery about its rising spending. The company also saw a slowdown in gaming growth in the first quarter of the year.