Meta’s Strategic Pivot: AI and Wearables Take Priority Over Metaverse

In a decisive move to address years of substantial losses, Meta Platforms Inc. is executing a significant strategic shift. The company is scaling back its virtual reality (VR) and Metaverse ambitions, reallocating capital toward artificial intelligence (AI) development and its wearables business. This confirms CEO Mark Zuckerberg's "Year of Efficiency" directive will continue to set the tone through 2026, raising questions about the long-term impact on shareholder value.

The company announced a substantial workforce reduction within its Reality Labs division on Wednesday, affecting approximately 10% of the unit's employees. This translates to between 1,000 and 1,500 positions being eliminated.

As part of this restructuring, Meta is shutting down three acquired VR gaming studios: Armature Studio, Twisted Pixel, and Sanzaru Games. Furthermore, development on the VR fitness application Supernatural will be halted, with the app transitioning to a maintenance-only mode. These actions represent a clear pullback of resources from the company's original, all-encompassing Metaverse vision.

This strategic withdrawal is driven by Reality Labs' staggering financial performance. The division reported an operating loss of $4.4 billion for the third quarter of 2025 alone. Since the end of 2020, cumulative losses for the unit have surpassed $70 billion. The current overhaul aims to stem these losses and deploy capital into more productive ventures.

A company spokesperson, Tracy Clayton, emphasized that the freed-up resources will be strategically redirected into higher-growth areas, specifically the expansion of the wearables segment and core AI initiatives.

Market and Analyst Reaction to the Shift

The immediate market reaction has been muted. Amid a generally weaker technology sector, Meta's shares have seen slight downward pressure over the past week, though they remain notably higher on a 30-day view. Trading around $631, the stock continues to hold well above its key 50, 100, and 200-day moving averages, underscoring a prior upward trend.

Despite the cuts, analyst sentiment remains firmly positive. Rosenblatt Securities reaffirmed its Buy rating on Wednesday, citing a price target of $1,117—a potential gain of roughly 75% from current levels. Morgan Stanley maintains its Overweight rating with a $750 target. Both firms view the heightened cost discipline and pivot toward AI as constructive developments.

Should investors sell immediately? Or is it worth buying Meta?

The consensus price target currently stands at $835.59, with an average recommendation of "Strong Buy." However, some institutional and insider activity indicates profit-taking following the stock's strong performance over the past year. WP Advisors LLC reduced its position by 2.2% last quarter, and insiders recently sold Meta shares worth approximately $24.8 million.

The Broader Trend: From Experimental Hardware to Integrated AI

Meta's realignment mirrors a wider industry trend away from experimental hardware and toward AI-driven applications and operational efficiency. A key success story in this transition is the Ray-Ban Meta Smart Glasses, which have found significantly greater consumer acceptance than the bulkier Quest VR headsets.

Strategically, this means Meta is now placing a heavier bet on devices that integrate AI assistants into daily life, rather than on building fully immersive virtual worlds. The efficiency drive Zuckerberg announced in 2023 remains the guiding principle for 2026, with this week's job cuts marking the first major tech layoff wave in Silicon Valley this year.

Looking Ahead: Quarterly Results and Capital Allocation

Investor attention now turns to the upcoming fourth-quarter earnings report. Consensus estimates project earnings per share of $8.19 on revenue of $58.34 billion. More critical than the short-term numbers will be management's guidance on capital expenditure plans for the current year.

A central focus will be the scale and speed at which Meta reallocates planned spending (CapEx) from Reality Labs toward AI data centers and the necessary energy infrastructure. This includes recently disclosed partnerships in the nuclear energy sector, such as the collaboration with Oklo, aimed at securing long-term, stable, and cost-effective power for AI computing clusters.

From a technical analysis perspective, the $630 zone remains a significant level. Sustained trading above this area would support the bullish analyst outlook, while a break below could signal that the market is applying a cooler valuation to the company's ambitious AI investment plans.