S&P Global Ratings believes Chinese internet giant Tencent’s growing core business and AI investments could lead to longer-term improvements in its competitiveness, forecasting annual capex to exceed CNY80 billion ($11 billion) for the next two years.

In a research note, the ratings company expects Tencent’s AI-related spending to continue to rise, with the company substantially increasing its procurement of AI chips to fulfil strong demand, both internally for its advertising and gaming businesses, and externally for cloud services.

President Martin Lau noted in an earnings call last week it plans to increase 2025 capex with the outlay to account for low teens percentage of revenue. “We will continue to invest in our own models and to accelerate the development AI applications of each of our business groups.”

Capex in 2024 jumped more than threefold to CNY76.8 billion, representing about 12 per cent of total revenue compared to 4 per cent in 2023. Q4 capex surged 386 per cent year-on-year to CNY36.6 billion, as its stepped up purchases of GPUs for its inference and cloud services requirements.

Positive impact
S&P Global Ratings noted some of Tencent’s AI investments are already generating positive cash flows by using the technology to create more targeted advertisements and make content creation more efficient as well as improve game development and game operation efficiency, which may enhance game experience and improve longevity of evergreen titles.

It forecasts these moves to contribute to high-single-digit growth in online gaming revenue this year and support continued above-industry growth in marketing services income. In addition, the ratings outfit said other new services within Weixin, WeChat and music subscriptions should continue to generate high-margin revenue streams.

The company last month unveiled an upgraded AI reasoning model, HunYuan T1, which it claims matches DeepSeek’s R1 in both performance and cost.

Q4 profit improved 90 per cent to CNY51.3 billion, with total revenue rising 11 per cent to CNY172.4 billion.

Marketing services revenue were up 17 per cent year-on-year to CNY35 billion; social networks sales rose 6 per cent to CNY29.8 billion. International games sales increased 15 per cent to CNY16.0 billion, while domestic revenue climbed 23 per cent to CNY33.2 billion.