Meta Plans 30% Metaverse Budget Trim—What Is Next

Meta Platforms (NASDAQ:META) shares are back on the ascent after briefly dipping below 25% from peak levels, thanks in part to a calming of the tech and AI waters, as well as recent news that the firm is looking to trim its metaverse budget by around 30%.

In a prior piece dated just last week, I suggested that Meta Platforms cut from its Reality Labs rather than its AI efforts. After all, AI stands out as the number-one priority, even though the metaverse might be the next big thing after that (some would argue quantum computing deserves that number-two spot). Regardless, it just makes more sense to place more chips on your bigger, bolder, timelier bet, even if it means metaverse and mixed reality won’t advance as quickly.

At this juncture, it feels like AI is the prime-time technology as the revolution looks to shift from a rapid buildout stage to more of a monetization stage. Though investors should be patient, as hefty front-loaded investments might make the relatively slow and steady trickling in of returns look quite small in comparison. But what happens if the monetization potential ends up far exceeding the cost of investment at some later point down the road?

In many ways, there’s the potential that investors are overestimating the short-term potential of AI while underestimating its longer-term potential, especially if the technology continues to advance at such a rapid pace.

Will investors feel more content with the budget now?

Either way, the November dip in AI stocks, I think, is fantastic for dip-buyers who want to take advantage of those who aren’t patient enough to wait around as AI spend soars while the uncertain returns look to arise at some uncertain time in the future. It’s hard to tell when the big payoff will be, if there will be one at all, especially as competition surges and the commoditization of AI models looks to deter investors from staying invested amid a rise in those fearful of an AI bubble.

Undoubtedly, Meta Platforms has already endured a violent decline of more than 25%. The big question moving forward is whether investors can feel comfortable with the sheer amount the company is poised to keep spending. In my view, the 30% budget cut on the metaverse should do quite a bit to soothe fears of excessive cash bleed in the new year. The Reality Labs division has been spending tens of billions of dollars over the past several years.

And while I wouldn’t be quick to dismiss those Reality Labs bets as wasted, I just think there are more pressing matters for Meta Platforms as the AI race becomes far more intense, while the metaverse race experiences a vast slowing of pace. In other words, AI is a rapid sprint towards AGI, while the metaverse is a lengthy marathon. And a company like Meta Platforms might need to win the AI sprint before the metaverse marathon.

What’s next for the metaverse, as Meta Platforms prioritizes AI?

Though I’m sure the metaverse could be a cash cow one day, there just aren’t as many players in the space that are “flooring it” compared to AI. Also, I believe we’ll need generative AI to reach a point where it can generate immersive virtual worlds before virtual reality and concepts like the metaverse can really experience an iPhone moment.

Undoubtedly, playing games, watching films, working, and exercising with a virtual-reality headset is fun and all, but it’ll probably not face mass adoption until the technology is in a spot such that we have customizable virtual worlds that are populated, either with AI non-player characters or other people.

Though it might seem far-fetched today, I think that advanced AI is absolutely critical to fuel a metaverse supercycle. I think Zuckerberg and his team have recognized this, and their recent moves (30% trim to the metaverse) suggest they’re getting their priorities right.

The bottom line

While investors might still need time to digest the hefty AI spend, I do think that the latest moves suggest that Meta Platforms is 100% an AI-first company. So, are more budget cuts coming?

That’s the big question I don’t have the answer to. Given recent trends, though, and the potential for AI to automate more advanced roles (think mid-level coding), I wouldn’t be surprised if there were more waves of smaller cuts through the next year. That said, I do not expect any future cuts to entail a slowdown in AI innovation.

The company seems to be aiming for maximum velocity in the AI race. And, in due time, I suspect they will trim accordingly if there are expenditures that aren’t conducive to accelerating its position in the race.