Tencent (00700) Q2 earnings call: Has enough chips for AI training and model upgrades, with various options in AI inference chips.

On August 13th, TENCENT held a conference call to discuss its second quarter performance. The financial report released on that day showed that Tencent's Q2 revenue increased by 15% year-on-year to 184.5 billion yuan, exceeding expectations, with a net profit growth of 17%. The gaming business showed strong recovery, with a 17% year-on-year increase in domestic gaming revenue. The company's advertising business achieved a 20% year-on-year growth driven by AI technology. Management stated that the growth in advertising revenue was primarily driven by the increase in single-exposure revenue brought by AI technology, as well as the growth in video and search traffic. Currently, the load rate of short video ads is only in the low single digits, indicating a significant room for improvement compared to the industry average of over 10%. WeChat's monthly active users grew by 3% to 1.41 billion, and Tencent is integrating more AI functions into WeChat and promoting social shopping to monetize the platform. Capital expenditures for the company more than doubled to 19.1 billion yuan in the June quarter. Tencent President Liu Chiping stated that Tencent will make cautious investments to support AI capabilities. The company is enhancing advertising precision and conversion efficiency through AI technology, while deploying AI functions across multiple business lines. It has sufficient chips for AI training and model upgrades. Regarding chip procurement and capital expenditures, management indicated that amidst the continued increase in AI investment, the company will prioritize capital expenditures. As for chip imports, especially from the United States, there is currently no clear conclusion. The company is actively awaiting the results of relevant discussions to formulate the next steps. In terms of AI business layout, Tencent continues to advance native AI applications such as Yuanbao, and integrates AI functions in products such as WeChat search, Tencent Meeting, and Tencent Documents. Management stated that although AI services are costly, the overall inference costs can be controlled through the use of small models and efficiency improvements. Enterprise service revenue accelerated this quarter mainly due to increased demand for GPU leasing and API Token usage. The management indicated that it will continue to expand its cloud computing business, but will not overly rely on GPU supply fluctuations. With regards to products like "Delta Force," Tencent management categorizes games into two types: buy-out AAA games and long-term service-based games. The company believes that the Chinese market is mainly focused on the latter category, and products like "Delta Force" have been performing well since launch. Tencent aims to continue expanding its cloud computing capabilities to support the growing external demand from enterprise customers. In conclusion, Tencent remains optimistic about the future growth prospects of its various business lines, particularly in the gaming and AI sectors. The company continues to leverage AI technology to enhance its services and drive revenue growth. Thank you.