Tencent admits GPUs only pay for themselves when powering personalized ads

Chinese web giant Tencent struggles to earn a return on investment from GPUs - unless it uses them to power its advertising business. If we buy GPUs and we deploy them into our ad tech, then that's a relatively short-cycle investment," said Chief Strategy Officer James Mitchell during the company's Q1 2026 earnings call. The GPUs yield better targeting, higher click-through rates and higher revenue and profit on a pretty accelerated basis," he said. But the company views GPUs powering work on its Hunyuan foundation model as important for our franchise." Mitchell said Tencent is comfortable with this situation. There's been many products within Tencent ... that went through lengthy incubation periods where they had no return on investment, but we were confident in the franchise value creation," he said. And then over time, they had more lengthy harvesting periods where we've been able to drive very healthy returns on that sunk investment." He predicted that AI will go through the same cycle But Tencent is struggling to make the wheel turn because it's only had enough GPUs to power its own services, leaving its public cloud without enough accelerators to rent to customers. Mitchell said Chinese manufacturers will soon fill the gap. As the supply of China design GPUs progressively ramps up, then we'll be remedying that situation," he said. Chief financial officer Shek Hon Lo weighed in with an observation that two factors made it hard for Tencent to get all the GPUs it wants: US sanctions, and limited fab capacity within China." That's now being addressed because the China designed ASICs are seeing more supply from fabs within China as well as more supply from fabs in neighboring countries," he said. But Tencent still expects GPU procurement to be harder than buying CPUs, as Lo said the company has very long-term" deals with CPU vendors. We've been a big customer for Intel and AMD for many years," he said. We've been progressively growing our volume with them for many years, and they believe it will continue to progressively grow our volume for many years to come." That remark will be cause for celebration at the US companies, which have watched other hyperscalers invest heavily in custom Arm silicon. Tencent posted another strong quarter, with revenue of RMB196.5 billion ($28.9 billion) representing 12 percent growth. The company's Weixin and QQ messaging apps have 1.95 billion monthly combined users. Tencent has tweaked their mobile apps to act as communication interfaces for controlling AI agents, allowing users to orchestrate agents from mobile for complicated task execution on PC and cloud." Tencent's Western rivals Google and Meta haven't yet built similar apps. And they don't experience the same hardware acquisition problems Tencent faces. (R)