META Prepares Sharp Cut To Metaverse Spending

Meta is preparing to scale back its metaverse ambitions as Mark Zuckerberg accelerates a strategic shift towards artificial intelligence, setting the stage for the most significant reset of the company’s long-term vision since its 2021 rebrand.

Executives at the social media group have discussed cutting the budget for its metaverse division by as much as 30 per cent next year. The review is expected to lead to job losses and will affect Horizon Worlds, the company’s virtual reality platform, as well as the Quest headset business. The plans were first reported by Bloomberg, though people close to the company say the details may still change.

The prospect of reduced metaverse spending was welcomed by investors who have long criticised the scale and timeline of Zuckerberg’s virtual world ambitions. Meta’s shares rose more than 7 per cent in early trading before closing up 3.4 per cent, adding about 60 billion dollars to its market value. The reaction underlined a persistent tension. Shareholders have questioned why Meta continued allocating tens of billions of dollars to a project that has yet to show broad consumer traction and has generated heavy operating losses. Since 2021, Reality Labs, the division responsible for the metaverse, has lost more than 70 billion dollars.

Zuckerberg’s rationale for the cuts stems from a growing belief inside the company that AI powered devices and software will shape the next computing cycle. Meta has built a leading position in AI research and open source model development, but Zuckerberg wants to accelerate efforts to commercialise that advantage across hardware and applications. The company is now investing billions in the infrastructure required to train large models and in hiring senior researchers able to deliver the AI capabilities he wants to build.

The strategic shift was reinforced this week when Meta announced a new design studio within Reality Labs that will focus on AI driven wearables, including smart glasses. The studio will be led by Alan Dye, the former head of design at Apple, who joined Meta after two decades with the iPhone maker. The appointment signals a renewed push to build consumer ready hardware that can make AI services a daily tool rather than an abstract capability.

A Meta spokesperson said the company was reallocating some of its spending within Reality Labs towards AI glasses and wearables in response to stronger momentum in that part of the business. They also said the company was not planning broader changes beyond that rebalancing. The spokesperson added that the success of Meta’s Ray-Ban smart glasses had reinforced the view that AI powered wearables could move more quickly towards widespread adoption than avatar based virtual worlds.

The reorientation marks a shift in tone from 2021, when Zuckerberg declared the metaverse the company’s future and renamed Facebook as Meta to reflect that ambition. At that time, he predicted a world in which billions of people would use avatars to socialise, shop and work in immersive virtual environments. But the metaverse project has been hampered by technical constraints, safety concerns and limited consumer interest. Critics warned that Meta was overestimating appetite for virtual worlds while underestimating the cost and complexity of building them.

The company attempted to link the two programmes by arguing that investment in avatars and virtual environments would support future AI applications. In 2023, Zuckerberg told investors that advances in the metaverse would help Meta deliver more sophisticated AI systems. Yet this message gained little traction with shareholders who were already uneasy about rising capital expenditure.

A brighter element of Reality Labs has been the early commercial performance of wearables such as the Ray-Ban Meta glasses. Zuckerberg believes these devices will eventually supplant smartphones as the dominant personal computing platform. He has said Meta’s long-term goal is to build what he calls personal superintelligence. This vision involves AI systems more capable than humans in a broad range of tasks, delivered through lightweight glasses that can fit into daily life.

The shift has prompted several rounds of restructuring over the past year. Executives have been moved into new roles, teams have been broken up or absorbed by others, and headcount has declined. The company says the aim is to streamline operations and ensure spending is concentrated in areas with clearer commercial potential.

Investor sentiment on Meta’s AI ambitions remains mixed. While the market reaction to the proposed metaverse cuts was positive, many shareholders remain wary of the rising cost of the company’s AI programme. In October, Meta lost more than 200 billion dollars in market value in a single day after Zuckerberg said AI investment would rise again next year. The drop highlighted the fragile balance between investor expectations of discipline and Zuckerberg’s determination to pursue an expansive AI agenda.

For now, the direction is clear. Meta is preparing to narrow its focus, reduce the scale of its metaverse programme and concentrate resources on AI powered hardware and services. Whether this leads to a more stable investment cycle or introduces fresh volatility will depend on the pace at which Meta can turn its AI research into mainstream consumer products.