Tencent, a Chinese web giant, stated its capital expenditure is slowing and will decelerate further due to its inability to acquire desired GPUs.
Tencent’s messaging and e-commerce applications serve over a billion monthly users, becoming integral to Chinese life. Its games are globally popular, and its video platforms generate significant advertising revenue. The company’s public cloud holds a ten percent share of the Chinese market. Tencent has invested in AI, noting it “benefitting us in business areas such as ad targeting and game engagement, as well as in efficiency enhancement areas such as coding, and game and video production.”
In contrast to companies like Meta, Google, Amazon, and Microsoft, which project increased AI infrastructure spending (already exceeding $10 billion a quarter) for several years, Tencent reported Q3 capex of RMB 13 billion ($1.9 billion). This represents a 31 percent decrease from the previous quarter and a 23 percent year-over-year decline.
Company executives indicated on a recent earnings call that capex will decrease further due to “a change in terms of AI chip availability” and “supply chain constraints sourcing GPUs.” Tencent maintains it possesses sufficient GPUs for its internal operations, but experiences “limited impact” on its public cloud revenue from a shortage of available accelerators for client rental.
Despite the fall in capital expenditure, Tencent’s revenue and profit rose. Q3 revenue reached RMB 192 billion ($27 billion), marking a 15 percent year-over-year improvement and a five percent increase over Q2. Gross profit improved by 19 percent year-over-year.
Tencent did not provide future revenue predictions, making it unclear how GPU procurement difficulties might affect AI service development. Executives mentioned ongoing work on improved large language models intended to power Tencent’s AI offerings, suggesting confidence regarding its AI ambitions despite procurement issues. This may stem from the rapid development of GPUs by other Chinese firms, which Tencent anticipates will eventually meet its needs. Tencent’s prediction of falling short-term capex suggests these accelerators will remain difficult to obtain for some time. Alternatively, Tencent may have adopted strategies similar to Alibaba, its local rival, by improving GPU efficiency.
Tencent’s admission of supply chain difficulties aligns with Washington’s policy of restricting American tech companies from selling advanced AI accelerators to China, citing concerns about modernizing Beijing’s military. The US added Tencent to its list of “Chinese military companies” earlier this year, a designation Tencent disputed, citing its primary focus on social media and entertainment.
