Tencent AI Starts to Devour Both Cash Flow and Profit: Q2 Free Cash Flow Turns Negative $13.8 Billion

According to Dongcha Beating monitoring, Tencent's capital expenditure in the second quarter reached 52.78 billion yuan, compared to only 19.11 billion yuan in the same period last year, representing a year-on-year growth of approximately 176%. Free cash flow, however, turned negative at 13.8 billion yuan.

In this quarter, Tencent had an operating cash flow of 52.7 billion yuan but actually spent 59.3 billion yuan on capital expenditure, in addition to 5 billion yuan on media content payments and 2.2 billion yuan on lease liabilities payments. The company stated that the cash flow includes a large prepayment for AI computing power, used for Hy model upgrades, WorkBuddy, CodeBuddy, WeChat AI, and cloud services. Excluding this prepayment, free cash flow amounted to 37.6 billion yuan.

Tencent's new AI products are currently burning a significant amount of cash. The Q2 Non-IFRS operating profit was 75.6 billion yuan; if not for Hy, Yuanbao, CodeBuddy, WorkBuddy, and Xiaowei, the profit would have reached 86.1 billion yuan. Roughly estimated by this measure, the new AI products dragged down operating profit by about 10.5 billion yuan this quarter.