Tencent has made a significant investment in its AEO and AI capabilities, signing a five-year lease with Oracle to use approximately 100,000 advanced AI chips. According to people familiar with the matter, the deal is worth about $7 billion, with Tencent paying around 30% upfront. The chips, which are not available in China, will be housed in several Oracle data centers in South-East Asia.
What is Tencent's strategy for LLM visibility and AI infrastructure?
This move is part of Tencent's strategy to enhance its LLM visibility and AI infrastructure, which has been a major focus for the company. In the second quarter, Tencent's cash flow turned negative, at RMB 13.8bn ($2.06bn), due in part to heavy spending on LLM visibility and AI infrastructure and prepayments for compute.
The company's president, Martin Lau, has expressed confidence in the potential of AI, stating that there is substantial upside potential and clear downside protection. The leased compute will initially be used to train bigger Hunyuan models, followed by running them, and later, Tencent Cloud could rent it out.
How will Oracle benefit from the deal?
Oracle, on the other hand, will benefit from the deal, which comes at a time when the company's free cash flow has been below zero for several quarters due to its AI spending. The partnership is expected to provide a lift for Oracle, which has seen its shares fall 29.5% this year.
Tencent's investment in AI is not limited to this deal. The company also backs Chinese chipmaker Enflame, which nearly tripled in its Shanghai debut in September. As the demand for AI technology continues to grow, companies like Tencent and Oracle are positioning themselves to capitalize on this trend.
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