Bullets:
Tencent is a giant Chinese social media company, who is launching new AI models.
They are also under sanction by the Pentagon.
Sales of the highest-performance Nvidia chips are banned for export to China, but via a loophole Chinese companies can access Nvidia GPU’s via leases with cloud services companies outside the country.
Tencent and Oracle signed a lease for 100,000 advanced Nvidia AI chips, for $7 billion over five years.
But analysts are quick to point out that Tencent will pay Oracle lease rates that are just a third what US users pay to rent those same Nvidia chips.
Inside China / Business is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
Report:
Good morning.
Tencent is a major technology company in China, and is the company behind Wechat, which is China’s everything app that is like WhatsApp and Facebook and Instagram and Apple Pay and AirBnb and Expedia and Google Translate and Uber, combined. Tencent just signed a contract with Oracle, to lease 100,000 advanced AI chips, which are not available in China.
It’s a five-year lease with Oracle, who is providing cloud access from their data centers elsewhere in Southeast Asia.
The deal is for around $7 billion, and includes an upfront payment of 30%. It may be that upfront payment that pushed Tencent’s cash flow negative for the quarter.
Tencent is pushing hard into artificial intelligence, and is releasing a new mixture-of-experts model for their enterprise users in software engineering and financial analysis.
There are other aspects of this story that are newsworthy. Tencent is blacklisted by Washington, after the Pentagon added the company to its list of “military companies” in early 2025. It was called the Defense Department way back then, and Tencent is one of over a hundred companies that “have military and commercial technology.”
So it may seem surprising that Tencent is allowed to sign multi-billion-dollar contracts with the same company that is building the data centers that President Trump insists are so important to stay ahead of China:
And the second weird part is that no Chinese company is allowed access to those chips at all, let alone Tencent. Nvidia is expressly banned from selling their most advanced chips in Mainland China. But here is the loophole—Chinese tech companies are allowed to lease them under US rules, as long as the cloud services and data centers are outside China.
So Oracle is full-speed ahead on this big lease contract with Tencent—a blacklisted Chinese tech company. Before the ink was dry on the lease, sell-side stock analysts were explaining to investors what it means for Oracle stock, which has had a lousy year. It makes for a good headline—a long-term lease contract, worth $7 billion, with 30% upfront, which will juice Oracle revenues across its Southeast Asia cloud division.
Oracle is forecast to show negative cash flows for this year, and for next year, and for the year after that—and will need $100 billion from cash reserves, or new capital raises, to finance its data center builds.
So “if the report is right, it’s a good sign for Oracle stock”—is the conclusion from these analysts. Big customers are signing big contracts for a long time, so Oracle doesn’t need to commit as much of its own capital as they thought, a few days ago:
And Oracle stockholders are happy for good news, no matter where from. The stock is down 29% year to date, and has lost half its value over the past year, and is off 57% from its 52-week high, last October. Oracle shares did, in fact, jump in the aftermarket on that news from Tencent. It was up 2% or so.
But the skeptics started asking questions, right away. Seven billion dollars over five years is $1.4 billion per year. These are chips that are not available in China, which means they are the high-end models. The math works out to just $1.60 per hour, which is “crazy cheap”, and it’s hard to see how Oracle will make money.
Last year Oracle paid $40 billion for 400,000 Nvidia chips, which at the time were the most advanced AI processors. That works out to $100,000 each. Chips are expensive to buy, and to lease, which makes the math for the contract with Tencent hard to explain. And it didn’t take long for cynics like NathanZ and AMD-711 and Frugal Vet to crunch the numbers and conclude it probably isn’t great for Oracle stock after all. That 2% jump in the pre-market went away 20 minutes later, because the price is too low. “Either the reported numbers are incorrect, or the deal won’t be profitable”. “The deal is weak and seems desperate”; the “implied rate of $1.60 per chip-hour is a fraction of the current market price.”
“Ask why a seller accepts a fraction”, especially to a company in China on the Pentagon’s blacklist. The company needs cash and is selling discounts to anyone who has any.
Zerohedge assumes here that the chips are either H100 or B200 chips, and computes Oracle’s discount to Tencent at anywhere from 42% to 81% compared to the current market price:
And that’s strange too, because spot markets for renting those chips, to US users, are rising. These are costs for one-year rental contracts, and Tencent at $1.60 is far below the rest of the market. These data are from other companies who lease Nvidia GPU’s for one year or longer. June 2026 allocations were sold out, at ranges from $2.20 per hour to $3.00. This company leases B200 chips at over $8.00 per hour:
Those Nvidia RTX pro chips rent at $1.80 per hour, but those are already available in China—Nvidia is permitted to sell those chips here–so Tencent is getting the fastest Nvidia chips, by leasing them from Oracle, and doing so for just one third what US users pay.
Oracle has a very different business model, than the companies that make the high-performance chips. Nvidia, Broadcom, Micron, and Intel are different from the hyperscalers themselves. Using the old analogy from the gold rush days, these are the companies that make the shovels and the picks and the pans. Kinda. They make money as long as the gold rush keeps going.
Oracle doesn’t make chips, though; they borrow lots of money to buy shovels and pans from Nvidia, borrow lots more to build data centers to put them in, then lease them to companies like Tencent, so that their cloud division can book the profits.
But there are no profits, at least not from this deal. Besides the hardware and the costs to build and staff their data centers, it also costs Oracle money to plug the chips in and run them. And electricity outside China costs a lot more than it costs here, in China.
And Tencent knows all that math too.
Be Good.
Resources and links:
The West’s WeChat Moment
[
Linas’s Newsletter
The West’s WeChat Moment, or OpenAI’s evolution from AI chatbot to the ultimate Everything App 😳📲; SoFi launches crypto trading 🤑📈; Coinbase walks away from $2B stablecoin M&A 😳🪙
👋 Hey, Linas here! Welcome back to a 🔓 weekly free edition 🔓 of my daily newsletter. Each day, I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech…
Read more
a year ago · 9 likes · 5 comments · Linas Beliūnas](https://linas.substack.com/p/weeklyfintechpulse376?embedding_publication_id=3320368)
The U.S. banned Nvidia’s best chips from going to China. Now it’s trying to close a crucial loophole
https://www.cnbc.com/2026/08/19/china-ai-nvidia-chips-us-export-controls.html
China’s Tencent leases 100,000 chips from Oracle to accelerate AI push, FT reports
https://www.reuters.com/world/china/chinas-tencent-leases-100000-chips-oracle-accelerate-ai-push-ft-reports-2026-10-01/
China’s Tencent releases new open-source AI model for coding, research tasks
https://www.reuters.com/world/asia-pacific/chinas-tencent-releases-new-open-source-ai-model-coding-research-tasks-2026-08-28/
Oracle has reportedly signed a $7 billion deal with Tencent. It could provide relief for the troubled stock.
https://www.marketwatch.com/story/oracle-has-reportedly-signed-a-7-billion-deal-with-tencent-it-could-provide-relief-for-the-troubled-stock-abd428f5
Tencent Signs Major Lease Deal With Oracle to Access 100,000 Advanced AI Chips
https://www.tikr.com/blog/tencent-oracle-lease-deal-100000-ai-chips
Oracle to spend $40 billion on Nvidia chips for OpenAI data center - FT
https://finance.yahoo.com/news/oracle-spend-40-billion-nvidia-190521076.html
Stock charts from www.finviz.com
SIGNS $7B AI COMPUTE DEAL WITH TENCENT
Oracle reportedly signed a $7 billion chip deal with Tencent. Why does every pump fade?
https://www.reddit.com/r/OracleStock/comments/1wv8u61/oracle/_reportedly/_signed/_a/_7/_billion/_chip/_deal/
Oracle Cloud to deploy 50,000 AMD AI chips, signaling new Nvidia competition
https://www.cnbc.com/2025/10/14/oracle-cloud-to-deploy-50000-amd-ai-chips-as-alternative-to-nvidia.html
Oracle to spend $40 billion on Nvidia chips for OpenAI data center - FT
https://finance.yahoo.com/news/oracle-spend-40-billion-nvidia-190521076.html
1-Click Clusters pricing
https://lambda.ai/pricing
GPU Rental Pricing Trends (1y* contract)
https://semianalysis.com/gpu-pricing-index/
Tencent Rents 100,000 AI Chips At Huge Discount From Cash-Strapped Oracle In $7BN Deal
https://www.zerohedge.com/markets/tencent-rents-100000-ai-chips-cash-strapped-oracle-huge-discount-7bn-deal
Tencent leases 100,000 chips from Oracle for $7 bln- FT
https://uk.finance.yahoo.com/news/tencent-leases-100-000-chips-040010199.html
Pentagon Adds Chinese Social Media Giant to Military Blacklist
https://www.nytimes.com/2025/01/06/business/us-chinese-military-companies-tencent-catl.html
Inside China / Business is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.
From Inside China / Business via This RSS Feed.