Meta is still burning money on AR/VR

When Meta released its quarterly earnings report on Wednesday evening, a colleague pointed out how Meta lost $4 billion on Reality Labs, the division responsible for augmented reality headsets, VR headsets, and VR software.

I yawned at first. Meta’s $4 billion loss at Reality Labs wasn’t surprising. It’s certain. Reality Labs lost another $4 billion, and the sky is blue too.

Then I realized that this in itself is noteworthy – for Meta, the losses in this unit are average behavior in the literal sense of the word. Over the last 21 quarterly earnings reports, dating back to 2021, Meta has lost a total of $83.5 billion at Reality Labs, representing losses averaging about $4 billion per quarter. This is banana!

Equally surprising is that as Meta pulls back on its superhuman ambitions, its spending on AI will be even more astronomical.

It is true that Meta does not have money. In the first quarter of this year, the social media giant generated net income of $26.8 billion, up 61% from the previous year. Revenue also rose 33% year over year to $56.3 billion.

But despite its foundation in social media, Meta’s current goal is to remain competitive with AI leaders like OpenAI and Anthropic. Meta expected that it would spend between $125 billion and $145 billion in 2026, which exceeds analysts’ expectations and previous Meta estimates.

“We are increasing our forecast for infrastructure capital expenditures for this year,” Meta CEO Mark Zuckerberg said in a public call with investors on Wednesday. “Most of this is due to rising component costs, especially memory prices […] “We are very focused on increasing the efficiency of our investments.”

Meta also spent a lot of money building a metaverse that no one really wanted or cared about. It will take more money to build the super-AI that (perhaps some) people actually want. Last year, Meta went on an expensive recruitment drive, poaching more than 50 AI researchers and engineers from competitors, which helped the company ship its newly overhauled AI model, Muse Spark, earlier this month. While CEO Mark Zuckerberg has reported “significant increases” in Meta AI usage since that release, creating and maintaining AI products has become more expensive.

On the earnings call, a concerned investor asked if Meta could provide a forecast for its capital expenditures for 2027. The response was not reassuring.

Meta CFO Susan Lee responded: “We do not provide specific capex forecasts for 2027, and we are frankly going through a very dynamic planning process ourselves as we work to define our capacity needs over the coming years.” “Our experience so far is that we have continued to reduce our computing needs.”

So, despite its impressive quarterly results, Meta investors are not happy. The stock fell more than 5% in after-hours trading.