With the US issuing new worldwide restrictions on the use of Huawei’s artificial intelligence chips, Chinese tech giant Tencent said on May 14 that it has enough previously acquired high-end chips to sustain its AI training “for a few more generations” and is exploring ways to boost AI inference efficiency, including through software optimization.
“So it’s a very dynamic situation, and we just … have to manage the situation,” Tencent president Martin Lau said on a conference call with analysts. This means not only addressing it “in a completely compliant way,” but also “trying to figure out the right solution for us to make sure that our AI strategy … can still be executed.”
On May 13, the US Bureau of Industry and Security (BIS) issued new guidance on chips for AI applications, restricting anyone, anywhere in the world, from using AI chips from Huawei—an unprecedented crackdown on the company despite the recent de-escalation of the tariff war.
The BIS also said it will issue a new rule in the future to replace the Biden-era “AI diffusion rule,” which would have sorted countries into three tiers and imposed limitations on the second and third tiers. Under that rule, even friendly countries such as Mexico would have faced restrictions on the advanced AI chips they could import from the US.
In April, the US government started requiring Nvidia to obtain licenses for exporting its H20 chip—which was introduced after Washington tightened export controls in 2023—to China over concerns about potential military applications. But Chinese technology giants including ByteDance, Alibaba, and Tencent had already stockpiled billions of dollars’ worth of H20s in advance, according to Nikkei Asia.
Lau said that while there is a short supply of graphics processing units, the company has lowered the priority of its GPU rental businesses and prioritized internal usage instead. The inventory will be used for the applications that will generate immediate returns, such as the advertising business and content recommendation products.
Training of its large language models, which requires higher-end chips, will be the next priority, Lau said.
“And now we can see, even with a smaller cluster, you can actually achieve very good training results,” he said. This helps the company look at its existing inventory of high-end chips and say that “we should have enough high-end chips to continue our training of models for a few more generations going forward.”
In inference, which requires relatively fewer high-end chips, the company is focusing on improving AI inference efficiency through software optimization, which could effectively double GPU capacity, Lau said.
“We can customize different sizes of … models, especially some applications do not require very large models,” he said, adding that Tencent can also tailor-make and distill models for different use cases, saving on inference usage of GPUs. The company is exploring compliant chip options available in China or for importation, Lau said.
Tencent posted much better-than-expected quarterly earnings on May 14 due to strong performances of its AI-enhanced advertising and evergreen games.
In the January-March quarter, revenue of the Shenzhen-based company rose 13% on the year to RMB 180 billion (USD 25.2 billion), beating the average forecast of RMB 174.6 billion (USD 24.4 billion) from analysts surveyed by LSEG.
Net income attributable to equity shareholders for the quarter came to RMB 47.8 billion (USD 6.7 billion), up 14%.
Chairman and CEO Pony Ma said AI capabilities contributed “tangibly” to Tencent’s businesses such as advertising and games in the first quarter and the company has stepped up its spending on new AI opportunities.
“We expect these strategic AI investments will create value for users and society, and generate substantial incremental returns for us over the longer term,” Ma said.
In the first quarter, the company revamped its ad platform with the enhanced generative AI tools, making creating ads faster with improved image generation and video editing. The company has also used AI to boost live streaming and optimize its recommendation algorithm.
Tencent’s value-added services, which includes gaming and social networks, contributed over 50% of its revenue. While its gaming division faces sector-specific headwinds like regulatory oversight and shifting consumer trends, flagship titles such as Honor of Kings and Peacekeeper Elites and the recently released Dungeon & Fighter Mobile and Delta Force helped domestic games grow 24% to RMB 42.9 billion (USD 6 billion), partially against a low base. International games grew 23% to RMB 16.6 billion (USD 2.3 billion), driven by growth in revenues from Brawl Stars, Clash Royale, and PUBG Mobile.
Despite broader industry pressures, Tencent’s online advertising grew 20% to RMB 31.9 billion (USD 4.5 billion). Over recent years, the company has embedded AI into its ad platform, capitalizing on its ubiquitous app WeChat to solidify its strong position in China’s digital advertising market. Earlier this year, it integrated Chinese startup DeepSeek’s technology into its various platforms, as Tencent’s self-developed AI tool Yuanbao was losing steam against major rivals.
However, its fintech revenue, which includes WeChat Pay, grew only 5% to RMB 54.9 billion (USD 7.7 billion) as China’s consumption remained tepid.
Tencent’s shares have rallied 24% since the start of the year, outpacing the broader Chinese equity performance in Hong Kong. Yet it remains 27% below its all-time peak.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.