Tencent and Alibaba Q2 2026 Earnings: Capex Surges, Free Cash Flow Turns Negative

Tencent and Alibaba's recent earnings reports show both companies have increased capital investment in artificial intelligence (AI). Tencent's capital expenditure for Q2 2026 was RMB 52.78 billion, up 176% year on year, with free cash flow of RMB -13.8 billion. Alibaba's capital expenditure for Q1 of fiscal 2027 (calendar Q2 2026) was RMB 67.68 billion, up 75% year on year, with free cash flow of RMB -44.67 billion. Tencent's general and administrative expenses rose 22% year on year to RMB 38.7 billion, mainly to support model upgrades and AI capability building; sales and marketing expenses increased 26% to RMB 11.9 billion. Alibaba newly disclosed an "AI Lab and Applications" segment, with adjusted EBITA loss of RMB 13.86 billion.

In cloud business, Tencent's fintech and enterprise services revenue grew 9% year on year to RMB 60.3 billion in Q2 2026, with cloud services revenue growth as the main driver. Alibaba's cloud revenue grew 38% year on year to RMB 41.6 billion in Q4 of fiscal 2026 (calendar Q2 2026), and grew 45% to RMB 48.44 billion in Q1 of fiscal 2027, with external customer revenue up 45% and profit margin improving to 11.6%-12%. Tencent's advertising revenue grew 19% in 2025 to RMB 145 billion, then grew 20% in Q1 2026 and 22% in Q2 2026, driven by higher ad prices and impressions.

AI investment has directly impacted financial performance. Tencent's non-IFRS operating profit grew 9% year on year to RMB 75.6 billion in Q2 2026; excluding contributions from new AI products, it grew 19% to RMB 86.1 billion. Alibaba's China e-commerce revenue in Q1 of fiscal 2027 was RMB 110.9 billion, down 8% year on year, but up 1% on a like-for-like basis. Alibaba's AI-related product quarterly revenue was RMB 12.38 billion, annualized at RMB 49.5 billion, and MaaS ARR exceeded RMB 16 billion in August 2026. Tencent's free cash flow was RMB -13.8 billion, or RMB 37.6 billion excluding prepayments for computing capacity; Alibaba's free cash flow was RMB -44.67 billion, with operating cash flow of RMB 22.95 billion, up 11% year on year.

Additionally, Alibaba's self-developed chips have entered large-scale deployment, serving more than 650 customers as of early August 2026. Tencent management said investment priorities are training, applications, and cloud rental. Both companies are in an AI capital-intensive phase, with cloud and AI-related revenue as key growth areas.