(Yicai) March 20 -- Shares of Tencent Holdings fell despite the Chinese tech giant posting a 68 percent surge in net profit last year, fueled by artificial intelligence-driven growth in online advertising and the integration of AI into its super app Weixin and other key products.

Tencent [HKG: 0700] ended down 3.8 percent at HKD519.50 (USD66.85) a share in Hong Kong today, after earlier sliding by as much as 4.1 percent. The stock is still up 25 percent so far this year.

Net profit was CNY194.1 billion (USD27 billion) in the 12 months ended Dec. 31, the Shenzhen-based company said in an earnings report released late yesterday. Revenue rose 8 percent to CNY660.3 billion.

Tencent has been investing in its proprietary AI model HunYuan since early 2023 and is integrating it across products, notably in Weixin, known internationally as WeChat, and Yuanbao, an AI assistant launched last May, in preparation for breakout growth in consumer adoption of AI. The firm is also embedding the technology into its advertising, cloud, and gaming businesses.

“We're investing in AI as both a growth multiplier for our existing businesses and as a new growth driver,” President Martin Lau said on Tencent’s earnings conference call.

The company has hiked capital expenditure, including on AI infrastructure, tripling it last year to USD10.7 billion, or 12 percent of revenue, with a notable increase in the fourth quarter after expanding purchases of graphics processing units for AI training and inference. Tencent plans to further lift capex this year, accounting again for a low double-digit percentage of its income.

"We have reorganized our AI teams to sharpen focus on both fast product innovation and deep model research, increased our AI-related capital expenditures, and increased our research and development and marketing efforts for our AI-native products," founder Pony Ma said in a press release.

"We believe these stepped-up investments will generate ongoing returns via uplifting productivity in our advertising business and longevity of our games, as well as longer-term value from accelerated consumer usage of our AI applications and enterprise adoption of our AI services,” said Ma, who is also chairman and chief executive.

Annual Earnings Close-Up

Revenue from marketing services, which includes the firm’s advertising business, rose 20 percent to CNY121.4 billion in 2024. Tencent upgraded its advertising technology platform by optimizing ad ranking systems and adding large language model capabilities, driving higher click-through rates and advertiser spending, the firm said.

Income from the value-added services and social network segments climbed 7 percent and 2 percent to CNY319.2 billion and CNY121.5 billion, respectively, of which domestic games revenue jumped 10 percent to CNY139.7 billion, while the international figure rose 9 percent to CNY58 billion.

Revenue from financial technology and business services grew 4 percent to CNY212 billion, mainly thanks to higher income from wealth management and commercial payment services and Weixin's higher e-commerce service fees.

For the fourth quarter of last year, net profit soared 90 percent from a year earlier to CNY51.3 billion (USD7.1 billion) on an 11 percent jump in revenue to CNY172.4 billion.

"Benefitting from AI-powered enhancements to our advertising platform, higher engagement in video accounts, and growth in our evergreen games, we achieved double-digit revenue growth” in the quarter, Ma said.

Tencent plans to pay a dividend of HKD4.50 (60 US cents) per share for a total of about HKD41 billion (USD5.3 billion), up 32 percent from the year before. In addition, it intends to repurchase at least HKD80 billion of shares on top of the HKD112 billion (USD14.4 billion) spent on share buybacks last year.

Editors: Dou Shicong, Martin Kadiev