Why Meta Platforms' Metaverse Cuts and AI Pivot Make It a 2026 Buy

Meta Platforms Inc. (NASDAQ: META) has long been a poster child for the metaverse, but 2025 marked a dramatic pivot. The company's decision to slash its metaverse budget by up to 30% and redirect capital toward AI initiatives has sparked both skepticism and optimism. For investors, the question is whether this strategic reallocation will translate into improved earnings potential by 2026. The answer, based on the company's financial trajectory and analyst projections, leans heavily in favor of a "buy" case.

Strategic Capital Reallocation: From Loss-Making Hype to AI-Driven Growth

Meta's Reality Labs division, once the crown jewel of its metaverse ambitions, has hemorrhaged over $70 billion since 2021 according to Bloomberg. Projects like Horizon Worlds and the Quest VR headset have failed to deliver sustained commercial success, despite holiday-driven spikes in sales confirmed by UploadVR. This financial drag has forced CEO Mark Zuckerberg to adopt a more pragmatic approach. By cutting 30% of the metaverse budget-potentially leading to layoffs as early as January 2026-Meta is reallocating resources to AI glasses, wearables, and large language models (LLMs).

The shift is not arbitrary. Meta's smart glasses, such as the Ray-Ban Meta, have tripled sales in 2025 compared to 2024 and are projected to reach 10 million units in production by 2026 as reported by UploadVR. These devices, paired with AI-powered features like real-time news updates via partnerships with USA Today, CNN, and Fox News, position Meta to capture a growing wearable tech market. Meanwhile, the company's focus on LLMs and generative AI tools aligns with broader industry trends, where AI is increasingly seen as the next frontier for ad monetization and user engagement according to financial analysts.

Earnings Potential: Balancing Short-Term Costs with Long-Term Gains

Critics argue that Meta's AI pivot will strain free cash flow in the near term. The company has projected capital expenditures to exceed $103 billion in 2026, a significant jump from $71 billion in 2025 according to Investing.com analysis. However, this spending is not merely a repeat of the metaverse's financial missteps. Unlike the metaverse, which struggled to justify its costs, AI initiatives are already showing tangible returns.

For instance, Meta's third-quarter 2025 earnings report highlighted a 26% year-over-year revenue increase, driven by AI-enhanced ad targeting and a 14% rise in ad impressions. Analysts at Morningstar project a 14% compound annual growth rate in Meta's sales over the next five years, fueled by AI-driven improvements in average revenue per user. Moreover, the company's operating margin has already improved to 30.23% from 29.87%, signaling stronger profitability expectations according to Yahoo Finance.

While the $100+ billion CAPEX forecast for 2026 raises eyebrows, it is a calculated risk. Meta's $44.45 billion in cash and marketable securities according to Q3 earnings provide a buffer, and the company's ad business remains a cash cow. By 2028, Meta anticipates $275.9 billion in revenue and $92.1 billion in earnings according to financial projections, a trajectory that hinges on AI's ability to sustain ad growth.

Analyst Sentiment: A Divided but Optimistic Outlook

The investment community is split on Meta's AI pivot. On one hand, Cantor Fitzgerald cut its price target due to rising cloud costs, and regulatory risks remain a wildcard-such as the EU's antitrust probe into Meta's AI tools. On the other, bullish analysts see a compelling case. Rosenblatt Securities, for example, has set a $1,117 price target (78% upside), citing Meta's first-mover advantage in AI wearables.

The stock's current valuation also supports a "buy" thesis. At less than 22 times 2026 earnings estimates, Meta is trading at a discount to its historical multiples. This undervaluation reflects lingering doubts about the metaverse, but it also creates a margin of safety for investors betting on the AI-driven rebound.

Conclusion: A Calculated Bet on AI's Future

Meta's metaverse cuts are not a retreat from innovation but a recalibration toward higher-potential opportunities. By redirecting capital from a loss-making division to AI initiatives that already show commercial traction, the company is positioning itself to capitalize on the next wave of tech disruption. While 2026 will likely be a year of heavy spending and regulatory scrutiny, the long-term rewards-enhanced ad monetization, a leadership role in wearable AI, and a healthier balance sheet-make Meta a compelling buy for investors with a 2026 horizon.