The founder of a major Chinese internet company announced that the firm is transforming into a new artificial intelligence-powered organization, nearly tripling its capital spending last quarter to accelerate investments in AI infrastructure.
“We are building a new, AI-enabled enterprise across three levels: intelligence, applications, and infrastructure,” he stated in a second-quarter financial report released yesterday evening. The company has significantly increased procurement of computing resources at the infrastructure level,” he added.
During the second quarter, the company’s capital expenditures exceeded CNY52.8 billion (approximately USD7.3 billion), representing a 176 percent increase compared to the previous year and a 65 percent rise from the previous quarter. Its net cash reserves dropped by 60 percent to CNY5.8 billion (around USD860 million) as of June 30, primarily due to investments in capital projects and dividend payouts.
The company can support extensive AI investments not only because these projects present substantial growth opportunities but also due to their relatively low downside risk, according to the President during an earnings call. Most AI investments focus on building infrastructure, which can be leased out through cloud services if needed, he explained.
Utilizing existing computing resources for leasing via its cloud platform can generate significant revenue. The company also revealed that prepayments and orders secured months ago could be resold at profit margins exceeding 30 percent, he noted.
However, the company primarily allocates computing resources to develop its own models and applications, with only excess capacity made available for leasing. The company has plans to gradually develop high-margin, cash-flow-generating AI-native businesses, he added.
The large-scale investments in AI are not expected to be an annual occurrence; resources for AI inference will only be deployed when assured of solid returns, he emphasized.
Second-Quarter Results
The firm’s net profit increased marginally by 0.7 percent to CNY56 billion last quarter compared to the same period last year, falling short of expectations. Total revenue reached CNY204.8 billion (approximately USD28.2 billion), up 11 percent year-over-year and 4 percent from the previous quarter.
Shares declined by 3.1 percent, trading at HKD447.20 (approximately USD57) as of 10:55 a.m. in Hong Kong today.
Profit calculated on a non-IFRS basis rose 9 percent year-on-year to CNY75.6 billion but remained unchanged from the first quarter. Excluding AI-related expenses, non-IFRS profit grew 19 percent to CNY86.1 billion year-over-year.
Within the company’s value-added services sector, revenue from social networks increased slightly by 0.8 percent to CNY32.5 billion, while gaming revenue grew 11 percent to CNY65.9 billion. The combined monthly active accounts on super-apps launched by the company, Weixin and WeChat, grew by 2 percent to 1.44 billion.
For the first half of the year, non-IFRS profit increased 9 percent to CNY151.3 billion, and revenue rose 10 percent to CNY401.2 billion.