Meta is still spending money on AR/VR

When Meta released its quarterly earnings report Wednesday night, colleagues pointed out that Meta had a $4 billion loss at Reality Labs, the company’s division responsible for AR glasses, VR headsets, and VR software.

At first I yawned. It seems no surprise that Meta lost $4 billion on Reality Labs. That’s natural. Reality Labs lost another $4 billion, but the sky is blue.

Then I realized that it was worth noting in itself. For the meta, a loss with this unit is literally an average move. Over the past 21 quarterly earnings reports dating back to 2021, Meta has totaled $83.5 billion in losses on Reality Labs, with an average loss of about $4 billion each quarter. It’s a banana!

Equally surprising is that as Meta retreats from its Metaverse ambitions, spending on AI will become even more astronomical.

To be sure, the meta is not without funds. In the first quarter of this year, the social media giant posted a net profit of $26.8 billion, up 61% year over year. Revenue also increased 33% year over year to $56.3 billion.

But despite its social media foundation, Meta’s current goal is to remain competitive with AI leaders like OpenAI and Anthropic. Meta expects to spend between $125 billion and $145 billion in 2026, which exceeds analyst forecasts and Meta’s previous forecasts.

“We are increasing our infrastructure capital spending forecast for this year,” Meta CEO Mark Zuckerberg said on a public conference call with investors on Wednesday. “Most of that is due to the rising cost of components, especially the price of memory (…) We are very focused on increasing the efficiency of our investments.”

Meta also spent a lot of money building a Metaverse that no one wanted or cared about. It will take even more funding to build the AI ​​superintelligence that (perhaps some) people actually want. Last year, Meta went on a big-ticket hiring spree, poaching more than 50 AI researchers and engineers from competitors. That enabled the company to ship a new and overhauled AI model, Muse Spark, earlier this month. CEO Mark Zuckerberg reported that meta-AI usage has “significantly increased” since its release, but the cost of building and maintaining AI products is only going to get higher.

During the earnings call, one concerned investor asked if Meta could provide an outlook for capital spending in 2027. The answer was not reassuring.

“We do not have a specific outlook for capital spending in 2027. Frankly, we are going through a very dynamic planning process ourselves as we consider the capacity we need over the next few years,” Meta CFO Susan Li responded. “Our experience has been that we continue to underestimate computing needs.”

So despite impressive quarterly results, Meta investors aren’t thrilled. The stock price fell more than 5% in after-hours trading.