China's biggest tech firm just posted its slowest growth quarter in a year and a half.
And the CEO basically said the AI push almost slipped through their fingers.
Revenue rose 9% to 196.5 billion yuan. That's about $28.9 billion. Wall Street wanted 199 billion.
So this was the slowest top-line growth Tencent has posted in six quarters.
Net profit looked better. Tencent earned 58.1 billion yuan. That's up from 47.8 billion a year ago. Lower marketing spend and operating leverage from older businesses helped.
The drag came from gaming. Domestic games revenue rose 6%. That's well below the 24% growth from the same quarter last year.
Part of the slowdown was a calendar issue. Lunar New Year fell later this year.
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Tencent said it will spend more than 36 billion yuan on AI products this year. That's more than double last year.
Marketing spend is set to grow 91% year over year. R&D spend is set to grow 55%.
To fund the AI push, Tencent is also cutting back on its share buyback program. That's a big shift. The firm has spent the last two years buying back stock fast.
The AI work has one early proof point. Tencent launched a flagship model called Hy3 preview in April. The model has 295 billion parameters. It quickly hit the top of an AI hosting site's leaderboard for token use.
Marketing services revenue rose 20%. That's an acceleration from 17% growth in Q4.
The lift came from an upgrade to Tencent's AI-powered ad system.
It's the firm's clearest sign that AI is starting to turn into real money.
Tencent president Martin Lau said on the call that the firm "completely overhauled" its foundational AI model. That came after former OpenAI researcher Yao Shunyu joined to lead the AI work.
CEO Pony Ma was even blunter on stage at the annual meeting. He said "a year ago we thought we were on the boat, then we found it was leaking."
He added that the firm is now upright. But "not yet seated."
Tencent is short on AI chip access. Just like every other Chinese tech firm.
So the real question for investors is whether AI-driven ad revenue can grow fast enough. It would need to offset slowing games and heavier spend.
Marketing services up 20% is the first real data point. The next quarter is the second.
Tencent also owns WeChat. The app has more than a billion users worldwide. Plugging AI into ads there could be a much bigger lift than gaming ever was. That's the bet behind the higher spend.
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