Meta CEO Mark Zuckerberg is preparing to significantly scale back investment in the company’s metaverse ambitions, marking a dramatic shift from the rhetoric that defined Meta’s rebrand just three years ago. According to people familiar with internal discussions, Meta is considering budget cuts of up to 30% for its metaverse group in 2026, a move that could lead to layoffs as early as January. The decision arrives at a moment when Meta faces a complex mix of competitive pressures, investor skepticism and shifting technological priorities—most notably the race to build advanced AI systems and hardware. For a company that once declared the metaverse its future, Meta’s pivot suggests a recalibration shaped by financial discipline and the gravitational pull of generative AI.

Budget Pressures and a Strategic Reorientation

Internal meetings held at Zuckerberg’s Hawaii compound last month kicked off Meta’s annual planning cycle, during which executives were asked to find 10% budget reductions across divisions. The metaverse group, however, was instructed to cut far deeper. The company confirmed that it is reallocating resources from metaverse initiatives toward AI glasses, wearables and other hardware products tied more directly to its AI strategy. While Meta insists these changes do not reflect a broader strategic withdrawal, the scale of the proposed cuts underscores how the company’s ambitions have shifted toward technologies with clearer near-term commercial potential.

Reality Labs—the umbrella division for VR headsets, AR devices and metaverse applications—has lost more than $70 billion since early 2021. Even as Meta continues to defend the long-term promise of virtual worlds, the unit’s ongoing financial drag has become increasingly difficult to justify in a market where investors are rewarding companies that demonstrate discipline and focus in AI development.

Slowing Metaverse Momentum and External Scrutiny

The muted adoption of Horizon Worlds and slower-than-expected mainstream uptake of VR devices have weakened Meta’s ability to defend its metaverse spend. The company had anticipated more industry-wide competition to validate its vision for immersive platforms, but that wave never arrived. Instead, competitors—from Anthropic to Google and OpenAI—are investing heavily in AI models and enterprise tools, not virtual worlds.

Meta’s VR ecosystem has also faced scrutiny from regulators and watchdog groups citing concerns over children’s privacy and safety. These issues add compliance and reputational risks to a product line already struggling to gain traction. Zuckerberg has, notably, stopped highlighting the metaverse in earnings calls and public appearances, a stark contrast to his messaging in 2021 when the rebrand from Facebook to Meta signaled a full-company pivot.

Investor Pressure and the Case for Practical Innovation

For years, analysts warned that Reality Labs was becoming a “leaky bucket,” draining capital from Meta’s highly profitable advertising engine and newer AI initiatives. Some, including Forrester’s Mike Proulx, predicted that Meta would shutter Horizon Worlds entirely by the end of 2024. While such a dramatic move has not occurred, the deep cuts under consideration reflect investor demands for pragmatism and returns.

Meta’s recent hiring of Apple’s head of design also signals a broader strategic emphasis on consumer hardware tied to AI experiences—an area where wearables, smart glasses and ambient computing systems may offer more immediate commercial upside than VR-driven virtual worlds.

Future Outlook

Meta’s recalibration does not signify the end of its metaverse ambitions, but it places AI at the center of the company’s long-term narrative. The question now is whether Meta’s scaled-down metaverse efforts can evolve into sustainable platforms alongside its AI investments, or whether the firm will continue to phase out costly projects that fail to deliver adoption. Investors will watch closely as Meta finalizes its 2026 budget, looking for signs of whether this shift represents a temporary correction or a decisive turn toward an AI-first future.