Advertising and gaming both booming! AI is opening up brand new monetization opportunities for Tencent.

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Tencent's performance in the third quarter of 2025 was strong, comprehensively exceeding market expectations. AI is becoming the new core engine for its growth, significantly driving acceleration in advertising revenue and empowering the cloud business to acquire more enterprise clients. Meanwhile, the gaming business, especially in international markets, showed explosive growth.

According to Chasewind Trading Desk, on November 13th, Goldman Sachs released a report stating that for investors, the core message of this financial report is: AI is no longer a distant story—it is now generating real revenue and profit for Tencent. The strong momentum of the two cash cow businesses, advertising and gaming, combined with the efficiency improvements and monetization potential brought by AI, is reshaping the company's growth curve.

However, the report also pointed out a key variable—a surprising drop in capital expenditure, and how this develops will be an important indicator for the market to judge Tencent’s determination to invest in AI infrastructure. At the same time, the company’s ongoing large-scale share buybacks send a signal to the market of management’s confidence in the current share price.

Performance Exceeds Expectations Across the Board, AI Becomes a New Engine for Growth

Goldman Sachs pointed out that Tencent’s third quarter results in 2025 were "solid", with revenue up 15% year-on-year, beating expectations; adjusted operating profit increased by 18% year-on-year, reaching RMB 72.6 billion, basically in line with expectations. The core driver of this strong performance comes from the accelerated penetration and application of AI technology across various business lines.

The report believes that AI not only accelerated growth in the advertising business, but also brought new growth momentum for the cloud business, as enterprise customers' demand for AI-related services continues to increase. This indicates that Tencent's AI strategy has transitioned from the investment stage to the commercialization and monetization stage.

Dual Engines Driving Growth: Advertising and Gaming

The brightest spots in the financial report are undoubtedly the advertising and gaming business segments.

Advertising Business (Marketing Services): Driven by AI technology, this segment’s revenue increased 21% year-on-year, reaching RMB 36.2 billion, outpacing the first half of 2025’s growth rate of 20%. Goldman Sachs analyzes that this is mainly due to strong demand for Video Accounts, Mini Programs, and WeChat Search, as well as the new AIM+ automated advertising solution which improved the efficiency and effectiveness of ad placements.Online Gaming Business: This segment achieved an impressive 23% year-on-year growth, with total revenue reaching RMB 63.6 billion, far exceeding expectations. The growth momentum was double-barreled:Domestic Games: Up 15% year-on-year to RMB 42.8 billion, showing steady performance, mainly contributed by evergreen titles like Honor of Kings and Peacekeeper Elite, as well as new releases like Valorant and Delta Force.International Games: Up a staggering 43% year-on-year to RMB 20.8 billion, the biggest highlight. This was mainly due to strong growth from Supercell’s games and contributions from newly acquired studios.

Profit Margin Expands Significantly, High-Profit Businesses Stand Out

Thanks to rapid growth in high-profit businesses, Tencent’s profitability improved significantly. According to the report, the company's overall gross margin for the third quarter reached 56.4%, a year-on-year increase of 3.3 percentage points.

Goldman Sachs analyzes that the expansion in profit margin mainly comes from a revenue structure that leans towards higher-margin businesses, such as value-added services with a gross margin of 61.2%, and marketing services with a gross margin of 56.7%. These high-profit revenues effectively offset increased operating expenses in native AI application marketing and AI project R&D, ultimately driving a 1.0 percentage point year-on-year increase in adjusted operating margin.

Capital Spending Unexpectedly Falls, AI Infrastructure Outlook in Focus

Amid high growth, one data point drew special attention from Goldman Sachs. Tencent’s capital expenditure for the third quarter was RMB 13.0 billion, down from RMB 19.1 billion in the second quarter.

Goldman Sachs speculates in the report that this quarter-on-quarter decrease may be related to factors such as "chip availability or computing device leasing." This change shifted market focus to Tencent’s future capital expenditure outlook. As global and domestic peers ramp up the AI infrastructure race, management’s views on AI cloud service opportunities and future investment plans will be key for investors in evaluating its long-term AI competitiveness.

Despite the temporary drop in capital expenditure, Goldman Sachs still believes that, driven by ever-improving AI model capabilities and growing enterprise demand, external AI and cloud services will be an important emerging growth point for Tencent. Additionally, the company continued high-volume share buybacks during the third quarter, totaling HK$19.2 billion, firmly moving towards its fiscal 2025 target of at least HK$80 billion in buybacks.

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