When Mark Zuckerberg renamed Facebook to Meta in 2021, he positioned the metaverse as the company’s next technological revolution—a virtual universe where people would work, socialize, and live digitally. He described this vision as the natural evolution of the mobile internet and promised a “metaverse-first” future.
At the time, excitement around the idea was enormous. Crypto-focused investment firm Grayscale predicted the metaverse could become a trillion-dollar market, and Barbados even established a virtual embassy in Decentraland.
Fast-forward nearly five years, and that bold pivot has become one of the costliest tech experiments ever. Meta’s Reality Labs division has accumulated over $70 billion in losses since 2021, according to Bloomberg, spending heavily on basic virtual worlds, low-fidelity avatars, pricey VR headsets, and platforms that, by 2022, had only a few dozen active users.
Despite significant investment, most people still don’t find the metaverse compelling enough to replace traditional devices. VR hardware remains bulky, expensive, and limited, and the ecosystem lacks mainstream, must-have experiences beyond niche gaming.
Reality Labs Faces Deep Budget Cuts
Bloomberg reports that Zuckerberg now plans to reduce Reality Labs’ budget by up to 30%, cutting between $4 billion and $6 billion. The reductions will impact Horizon Worlds, Quest hardware, and potentially lead to layoffs as early as January.
This comes after a high-level strategy session at Zuckerberg’s Hawaii estate, where he directed executives to reduce the 2026 companywide budget by 10%. Reality Labs was told to cut even more because VR demand hasn’t grown as expected.
Wall Street reacted instantly. Meta’s stock surged over 4%, adding roughly $69 billion in market value. Many analysts had long criticized the metaverse as a costly distraction with little financial return.
The Metaverse Isn’t Dead—But AI Is Now the Priority
Meta did not comment to Fortune, but a spokesperson told the South China Morning Post that the company is reallocating resources “from metaverse toward AI-powered glasses and wearables,” citing strong momentum behind the Ray-Ban smart glasses, whose sales have reportedly tripled in the last year.
Still, there’s no denying the shift: AI has replaced the metaverse as Meta’s main focus.
Meta plans to spend around $72 billion on AI in 2025—nearly equal to the total losses from the metaverse initiative. This spending covers data centers, next-generation AI models, and new devices. Investors seem far more comfortable with AI-related expenses but still expect clearer guidance on long-term costs.
The rest of the tech industry is making similar moves. Apple is reorganizing leadership around AI priorities, Microsoft is reassessing the financial model behind AI products, and Amazon and Google are pouring billions into cloud infrastructure. Projects without a strong AI connection are increasingly at risk, with Meta becoming the clearest example of this trend.
Notably, during Meta’s latest earnings call, executives didn’t mention the word “metaverse” even once.
