Tencent reported quarterly revenue of 27 billion dollars on Thursday but revealed that shortages of advanced AI chips are constraining growth in its cloud computing business, highlighting how US export restrictions are reshaping China's technology sector.
The Chinese tech giant's third-quarter revenue rose 15 percent year over year to RMB 192 billion, while net profit reached RMB 63.1 billion, exceeding analyst estimates.
However, the company's capital expenditure fell to $ 1.9 billion, down 31 percent from the previous quarter and 23 percent year over year.
This represents a stark contrast to American rivals Meta, Alphabet, Microsoft, and Amazon, which collectively plan to spend over $ 380 billion on AI infrastructure this year, underscoring the significant competitive disadvantage created by restricted access to advanced semiconductors.
How Severe Is the GPU Shortage Affecting Tencent Operations
One constraint on the growth of the cloud business is the availability of AI chips, Tencent President Martin Lau said during the company's earnings call.
When AI chips are actually in short supply, we actually prioritize internal use over renting compute power to external cloud clients.
This strategic decision reflects the difficult trade-offs Chinese technology companies face as they compete in AI development while managing severe hardware constraints imposed by geopolitical tensions.
Lau emphasized that while Tencent possesses sufficient GPUs for internal operations, the shortage prevents the company from fully capitalizing on cloud revenue opportunities.
If there is no AI chip supply constraint, our cloud revenue should continue to grow, he stated.
The GPU shortage stems from ongoing US export restrictions on advanced semiconductors to China.
In January 2025, the Pentagon added Tencent to its list of Chinese military companies, a designation the company disputed as clearly a mistake.
Nvidia CEO Jensen Huang confirmed in November that the company has no active plans to ship Blackwell chips to China.
Did you know?
Tencent Cloud is one of the largest cloud infrastructure providers in China and is expanding globally, competing with other major players like Alibaba Cloud, Amazon Web Services (AWS), and Microsoft Azure.
What Drove Strong Performance in Gaming and Advertising
Despite infrastructure constraints, Tencent's core businesses delivered impressive growth across multiple segments. Domestic gaming revenue increased 15 percent year over year, driven by popular titles including Delta Force and Honor of Kings, while international gaming revenue surged 43 percent.
The strong international performance demonstrates Tencent's successful expansion beyond its home market and the global appeal of its gaming franchises.
Marketing services revenue jumped 21 percent, driven by AI-enhanced ad targeting that improves advertiser return on investment and user engagement.
The company has integrated artificial intelligence across its platforms, embedding startup DeepSeek's model into WeChat, which serves over 1 billion users in China.
Tencent also launched Yuanbao, a ChatGPT-style assistant that ranks among the country's most popular AI tools, demonstrating the company's ability to develop competitive AI applications despite hardware limitations.
Why Did Capital Expenditure Fall Despite Revenue Growth
Tencent executives indicated that 2025 capital expenditure would fall short of earlier guidance due to changes in AI chip availability and supply chain constraints on GPU sourcing. However, spending would still exceed 2024 levels.
Chief Strategy Officer James Mitchell noted the decline does not reflect a change in our AI strategy but rather shifts in chip supply conditions.
This statement suggests the company maintains its long-term commitment to AI development despite current hardware obstacles.
The reduced capital spending stands in stark contrast to the aggressive infrastructure investments being made by Western technology companies.
American cloud providers are racing to build massive data centers equipped with the latest GPU accelerators to support training and inference for increasingly large AI models.
Tencent's constrained spending reflects not a lack of ambition or financial resources but rather the physical unavailability of the advanced chips needed to compete at the frontier of AI development.
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How Are US Export Restrictions Reshaping the China Tech Sector
The semiconductor export controls represent one of the most significant technology policy interventions in recent history, fundamentally altering the competitive landscape for artificial intelligence development.
US restrictions limit Chinese companies' access to cutting-edge GPUs from Nvidia and AMD, as well as to advanced chip-manufacturing equipment needed to produce domestic alternatives.
These controls aim to maintain American leadership in AI while preventing potential military applications of the technology.
Chinese technology companies have responded with various strategies, including stockpiling older generation chips before restrictions took effect, developing more efficient AI algorithms that require less computational power, and investing heavily in domestic semiconductor manufacturing capabilities.
However, building competitive chip fabrication facilities requires years of development and enormous capital investment.
The technological gap in semiconductor manufacturing between China and leaders like Taiwan Semiconductor Manufacturing Company remains substantial despite aggressive government support for domestic alternatives.
What Is Tencent's Strategy for Managing Limited GPU Access
Tencent's decision to prioritize internal GPU usage over cloud rentals reveals a strategic choice to focus AI capabilities on enhancing its core products rather than competing directly in cloud infrastructure markets.
The company is embedding AI features across its ecosystem, including WeChat, gaming platforms, advertising systems, and content recommendation engines.
These internal applications generate direct revenue and competitive advantages that may provide higher returns than renting compute capacity to external customers.
The company continues to invest in AI research and development focused on efficiency improvements that deliver strong performance with available hardware.
Techniques such as model compression, quantization, and optimized training methods enable developers to achieve better results with limited computational resources.
Tencent is also exploring partnerships with domestic chip designers and participating in government initiatives to accelerate Chinese semiconductor self-sufficiency.
While these efforts will take years to materialize fully, they represent the long-term approach necessary for Chinese technology companies to maintain competitiveness in the AI era despite ongoing geopolitical constraints on hardware access.
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