The stock price of social media giant Meta Platforms (META) experienced a significant increase during Thursday’s trading session, with an intraday rise of over 5%. This positive market reaction was directly triggered by a report indicating that the company will substantially reduce spending on its metaverse division.
As part of the company’s 2026 budget planning, Meta executives are discussing cutting metaverse-related expenditures by up to 30%. This plan is a component of CEO Mark Zuckerberg’s request for business lines across the company to reduce expenses by approximately 10% on average. A large portion of the cuts will focus on the digital transformation efforts in the metaverse, which had previously received massive investment but failed to meet expectations in terms of returns. Specific adjustments may involve the virtual world platform “Horizon Worlds” and the Quest virtual reality device business.
Since the company rebranded itself in 2021 and went all-in on the metaverse, its Reality Labs division responsible for this business has accumulated losses exceeding $70 billion. However, the industry as a whole has failed to achieve the anticipated explosive growth, with limited market enthusiasm and user adoption, leading to ongoing investor skepticism regarding this long-term, massive investment. The market generally views the reduction in metaverse spending as a positive signal, believing it will help the company tighten the “leaky bucket” of persistent losses, thereby boosting the stock price.
In contrast to the struggles in the metaverse, Meta has achieved more significant success in the field of artificial intelligence. In the third quarter, Zuckerberg noted that AI recommendation systems have effectively enhanced content quality and user engagement on its social media platforms, subsequently driving growth in advertising revenue. Furthermore, the company’s Llama series of AI models also holds a leading position within the industry. In recent years, Zuckerberg has rarely emphasized the “metaverse” publicly, instead concentrating his speeches and resources on large AI models, generative AI products, and related hardware.
This strategic retrenchment signifies that Meta is shifting key resources from the metaverse toward its core AI business, which holds greater potential for tangible growth. Despite the company’s strong recent performance, its stock price has been relatively stagnant over the past year, leading to a decline in valuation. Currently, Meta’s price-to-earnings ratio is among the lowest within the group of seven major tech giants. For the market, a company undertaking the correct strategic adjustments, combined with its attractive valuation, enhances its investment appeal. Even with substantial cuts to metaverse spending, Meta continues to maintain its presence in consumer hardware through actions such as poaching a design lead from Apple. Its future direction is expected to be more closely aligned with the AI ecosystem.
