According to CNBC, Meta’s stock climbed 5% on Thursday after a Bloomberg report indicated the company is planning significant budget cuts to its metaverse unit, Reality Labs. The report, citing people familiar with the talks, said executives are considering cuts as high as 30%, which would likely impact the virtual reality group and include layoffs. Analysts from major firms like JPMorgan, Wells Fargo, Bank of America, and Citi celebrated the news, viewing it as a sign of renewed financial discipline. Price targets from these analysts imply upside of 21% to 28% from Meta’s Thursday close, with Rosenblatt setting a street-high target of $1,117—a whopping 69% potential gain. The consensus is that these cuts free up resources to reallocate toward Meta’s AI initiatives, specifically the Meta Superintelligence Lab (MSL). The news is seen as reassuring ahead of Meta’s late January earnings call, where it will provide initial 2026 expense guidance.
Wall Street’s Sigh of Relief
Here’s the thing: Wall Street has been deeply, profoundly skeptical of the metaverse bet for years. Reality Labs has been a financial black hole, on track to lose an estimated $17.6 billion in 2025. So when a report drops saying Meta might finally be turning off the firehose of cash, even a little? The reaction is pure, unadulterated relief. It’s not really about the metaverse failing—everyone already knew that part. It’s about management listening. The analysts’ notes are littered with phrases like “expense discipline,” “cost structure,” and “rationalize costs.” Basically, they’re saying, “Thank god you’re acting like a real business again.” The 5% stock jump is just the initial pop; the upgraded price targets are the real vote of confidence that this could improve earnings per share (EPS) and cash flow for years to come.
The AI Pivot Gets Real
But this isn’t just about cutting a loser. It’s about fueling the new winner. Every analyst directly connects these potential savings to Meta’s massive investment in artificial intelligence. Citi’s Ronald Josey explicitly said it frees up resources for the “Super Intelligence Labs.” Think about the trade-off: you stop burning billions on VR headsets that aren’t selling, and you redirect that capital toward the compute power, talent, and research needed to compete with OpenAI and Google. It’s a no-brainer from a capital allocation perspective. And the timing is key. Newer AI products are slated for 2026, and this move signals that Meta is “doubling down” on that priority. They’re choosing the tangible, revenue-generating potential of AI over the speculative, distant dream of the metaverse.
The 2026 Guidance Crunch
Now, why is this news so urgent? Because Meta is about to face a tough conversation with investors. On its late January earnings call, the company has to give its initial total expense guidance for 2026. And everyone knows it’s going to be a whopper, thanks to AI capex and hiring for the MSL. There was genuine anxiety that margins would contract badly. This reported cut is a pre-emptive move. It’s Meta signaling, “Hey, we know costs are going up, but look, we’re finding savings elsewhere to offset it.” As Bank of America noted, it gives them “cost contingencies” to maintain EPS growth even if ad revenue hits a soft patch. It’s a defensive financial maneuver that makes the upcoming pill easier to swallow.
Is the Celebration Premature?
So, is this an unalloyed win? I think we should pump the brakes just a tad. First, this is still a reported plan, not a confirmed announcement from Meta. Second, even a 30% cut to Reality Labs’ budget still leaves a multi-billion dollar loss-making operation. This isn’t shutting it down; it’s trimming the sails. The fundamental question remains: does Meta have a coherent, profitable long-term plan for any of this hardware, or is this just a slower path to the same dead end? And let’s not forget, pivoting hard into AI is insanely expensive and brutally competitive. They’re jumping from one capital-intensive moonshot to another. The difference is that AI has immediate applications in their core ads business. That’s why Wall Street is cheering. They see a path to ROI this time. But the pressure to deliver tangible results from those AI investments just went through the roof.
