Meta to Cut 10% of Metaverse Arm Amid AI Push: Report

Meta is reportedly planning to cut around 10% of its workforce in the Reality Labs division, focusing primarily on the metaverse and virtual reality (VR) teams according to Business Insider. The cuts, expected to affect approximately 1,500 employees out of a total of 15,000 in the division, are set to be announced this week as reported by Seeking Alpha. The move comes as the company continues to prioritize artificial intelligence (AI) over its long-term metaverse vision according to Investing.com.

The layoffs are expected to disproportionately impact teams working on VR headsets and Horizon Worlds, the VR-based social network as reported by the NYT. Meta's chief technology officer and Reality Labs head, Andrew Bosworth, has emphasized the significance of 2025 for the division, describing it as the most critical year of his tenure according to The Verge.

Reality Labs has incurred more than $70 billion in losses since 2020 as the company invested heavily in unprofitable metaverse projects as reported by Reuters. The restructuring reflects Meta's broader shift in resource allocation, redirecting investments toward AI development and infrastructure as noted by Seeking Alpha.

Why the Move Happened

Meta's decision to reduce its Reality Labs workforce is driven by both financial and strategic considerations. The metaverse has struggled to gain traction, with VR headsets failing to attract the mass market according to MarketWatch. At the same time, Meta faces increasing competition in the AI space and is looking to accelerate its own AI initiatives as reported by Investing.com.

The company has allocated up to $70 billion for AI development, including high-performance chips and talent, nearly double the amount from 2024. This strategic pivot aligns with Mark Zuckerberg's directive to top executives to cut budgets for non-core areas and invest in AI.

Market and Analyst Reactions to the News

The news has drawn mixed reactions from investors and analysts. Some see the move as a necessary step to focus on more profitable ventures, particularly as AI becomes a key battleground for major tech firms. Others are concerned about the long-term implications of scaling back the metaverse, a core part of Meta's rebranded identity.

Analysts highlight that the metaverse has not yet generated meaningful revenue and has been a financial drain. The recent delay in international expansion for Ray-Ban Display glasses due to inventory constraints has also raised questions about Meta's ability to execute on hardware products.

What Analysts Are Watching Next

Investors and market watchers are closely monitoring the impact of these cuts on Meta's AI ambitions. The company recently announced a new "top-level initiative" for AI infrastructure, including the appointment of Dina Powell McCormick as a new president to lead government partnerships.

The success of Meta's AI strategy will depend on its ability to compete with companies like OpenAI and Google. The launch of new AI models like Avocado and Mango is expected to be a key indicator of progress.

In the broader market, the trend toward AI infrastructure is gaining momentum. Moody's recently reported that $3 trillion will be invested in data center-related projects over the next five years, with major tech firms leading the charge. Meta's ability to secure its share of these investments will be a key factor in its future performance.

Meta has not officially commented on the reported layoffs, and the company declined to provide a statement to multiple outlets.