Tencent's stock rose sharply after the Chinese technology titan rolled out its latest image-generation model, showcasing its artificial-intelligence progress on the same day rival Alibaba Group held its annual AI conference.

Shares of Tencent climbed as much as 7.8% on Tuesday before trimming the gain to about 5.5% in afternoon trading, still on track for its best day since early June. The benchmark Hang Seng Index was recently 0.3% higher, while the Nasdaq-like Hang Seng Tech Index added 0.5%.

The Chinese social-media and videogame giant on Tuesday launched a preview version of its Hy Image 3.5 model that it said supports text-to-image and image-to-image generation as well as creation through rounds of conversation.

Tencent said the Hy Image 3.5 preview scored 30% higher than its predecessor, and its performance was comparable with ByteDance's Seedream 5.0 Pro. The new model is also slightly ahead of Google's Nano Banana Pro and Alibaba's Qwen-Image-3.0 Pro. Tencent said it tested the Hy Image 3.5 in blind tests involving hundreds of in-house professional designers.

The release comes as Tencent is stepping up its AI efforts to compete with rivals including Alibaba and ByteDance. The company recently hired former OpenAI researcher Yao Shunyu as its chief AI scientist.

The Shenzhen-based company has made some progress as it accelerates AI spending this year, targeting both foundational models and AI agents for deep ecosystem integration. Its AI desktop agent, WorkBuddy, which is capable of independently executing workflows, has become China's most widely used office agent.

Analysts said that AI is already helping Tencent improve user engagement, operating efficiency and monetization in its core gaming and ads businesses, while its AI productivity tools have seen increasing subscriptions.

Tencent continues to have several key AI monetization pathways despite the higher capital expenditure, Daiwa analysts wrote in a recent note.