- AI is accelerating game content creation while lowering costs, enabling more frequent updates to drive engagement and retention
- Personalised AI gameplay boosts user retention, time spent, and ARPU via tailored difficulty, offers, and adaptive NPC behaviour
- AI-powered marketing improves targeting, creatives, and conversion, lowering CPI and lifting ROAS for mobile game acquisition and reactivation
- Tencent outperformed peers with 2Q25 games revenue +22% y/y, driven by strong domestic hits and 35% growth in international games
- Chinese mobile-first publishers with large-model AI see faster monetisation growth, aided by rising game approvals in Jan-Jul 2025, 19.3% y/y
Related Insights
AI is accelerating growth and expanding margins. AI is reshaping both the revenue engine and cost base of games, compressing build times and lowering unit content costs, while c.87%1 of video game developers are using AI to streamline and automate tasks. In production, tools like Tencent’s Hunyuan3D and VISVISE compress 3D asset creation from five days to two hours with skeletal animations completed in seconds, enabling faster content updates without higher headcount. On gameplay, adaptive AI systems from NVIDIA and Epic Games enable lifelike NPCs with real-time dialogue, lip-sync, and facial animation, deepening engagement and retention. On go-to-market, AI-driven ad stacks optimise creatives and targeting, improving ROAS and lowering user acquisition costs—Tencent’s platform drove a 20% y/y rise in ad revenue and user growth. Cost efficiency is visible at Sea Ltd where 2Q25 R&D spending was flat at USD297mn despite a richer update cadence. Overall, AI enhances growth, efficiency, and margins across the gaming value chain.
Online game players generally delivered results beat; Tencent leads peers. Global online game developers broadly delivered earnings beats, supported by strong franchise engagement, sustained live-operations monetisation, and AI-driven marketing gains. Tencent stood out with the fastest games revenue growth (2Q25: +22% y/y) and international games growth (2Q25: +35% y/y) among peers. Delta Force ranked top three in China by DAU in July, highlighting strong engagement, while Peacekeeper Elite’s DAU rose 30% y/y. International revenue grew 35% y/y, driven by Supercell titles like Clash Royale and supported by frequent updates and AI-powered marketing tools that enhance user acquisition and cross-title retention. Sea Ltd followed with robust momentum as Garena’s 2Q25 gaming bookings reached USD661mn (+23% y/y), underpinned by a larger active user base, deeper paying-user penetration, and strong performance in Free Fire. Its management also raised FY25F gaming bookings growth to >30% with upcoming launches. Electronic Arts (EA) delivered steady single-digit growth on sports franchises and mobile sports titles, Krafton posted double-digit gains from PUBG across PC and mobile with record profitability, and Take-Two saw strong bookings growth driven by recurrent spending, though earnings were pressured by heavier investment.
Mobile and AI-driven developers preferred. Chinese developers have greater exposure to mobile games (c.75%) vs US peers like Take-Two (52%). Mobile is outgrowing PC/console as AI-enhanced marketing on super-apps improves targeting, creatives, and conversion, lowering CPI and lifting ROAS for new launches and reactivations. Moreover, AI-driven gameplay and personalisation boost DAU and time spent. Chinese gaming giants with strong AI models should see more tangible benefits. Pipeline visibility is improving with 946 approvals in Jan–Jul 2025 (+19% y/y) and >1,600 expected for 2025, including 100+ imports like The Finals (Tencent)2.
EA Buyout: Largest-ever gaming LBO positions sector for AI-led transformation. The USD55bn leveraged buyout of EA, the largest in gaming history, signals confidence in AI’s transformative potential across the sector. The deal, led by Saudi Arabia’s Public Investment Fund, is financed through USD36bn in equity and USD20bn in debt, underscoring long-term strategic commitment to interactive entertainment. Going private gives EA flexibility to invest in AI-driven content creation and automation, compressing development cycles, and lifting margins while positioning the company for long-term, innovation-led growth and deeper AI integration across operations.
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