Meta Pivots to AI, Slashes Jobs in Metaverse Division
The social media giant is cutting staff in its Reality Labs unit, shifting billions in investment from the metaverse to AI-powered consumer devices.
Meta Platforms is initiating a fresh round of job cuts within its experimental Reality Labs division, a decisive move in the company’s significant strategic pivot away from the metaverse and toward artificial intelligence.
The social media giant, valued at approximately $1.65 trillion, is reallocating capital and talent to accelerate the development of AI-powered consumer devices, signaling a major strategic shift for the company. Shares of Meta were trading at $641.97 in Tuesday morning's session.
The long-term vision of an immersive digital 'metaverse,' a core focus for CEO Mark Zuckerberg for the past several years, has been scaled back. The move follows immense investor pressure and staggering financial losses within the Reality Labs unit responsible for the effort. According to recent reports, the division has accumulated operating losses exceeding $70 billion since 2020 without achieving mainstream consumer adoption.
This latest restructuring is expected to impact 10% to 15% of the workforce in Reality Labs, primarily affecting employees working on virtual reality headsets and the Horizon Worlds virtual social platform. This follows a broader trend of workforce reductions in the tech sector as companies streamline operations and refocus on the burgeoning field of artificial intelligence.
Meta's refocus involves a massive new commitment to AI, with the company signaling potential investments of up to $70 billion in AI infrastructure and talent. This represents a near doubling of its 2024 budget for the sector and positions Meta to compete more directly with other tech behemoths like Google, Microsoft, and Apple in the AI arms race.
Despite the operational turbulence and the strategic pivot, Wall Street largely maintains a bullish outlook on the company. Of 67 analysts covering the stock, 60 rate it as a 'Buy' or 'Strong Buy', with a consensus price target of $835.54. However, recent sentiment has been mixed as analysts digest the capital-intensive nature of the AI shift. In December, Morgan Stanley trimmed its price target from $820 to $750, citing concerns over the heavy spending, while Baird raised its target slightly to $815.
The strategic shift acknowledges the slower-than-anticipated adoption of the metaverse, while leaning into the explosive growth and investor enthusiasm for generative AI. By redirecting resources, Meta aims to develop and launch a new generation of AI-infused hardware, likely including more advanced smart glasses and other consumer-facing devices. This pivot is not just a financial decision but a tactical repositioning to secure a leading role in the next wave of computing, where AI is seen as the central pillar.