Meta is still burning money on AR/VR

In its latest quarterly earnings report, Meta revealed a staggering $4 billion loss from its Reality Labs division, which oversees the development of its augmented reality glasses, virtual reality headsets, and related software. Initially, this figure might not raise eyebrows, as substantial losses from Reality Labs have become the norm for the tech giant. Over the past 21 quarters, dating back to 2021, Meta has incurred total losses of approximately $83.5 billion in this area, averaging around $4 billion each quarter—a truly astonishing figure. As Meta shifts its focus away from the metaverse, it is poised to invest even more heavily in artificial intelligence. The company is well-positioned financially, having reported a net income of $26.8 billion in the first quarter of this year, marking a 61% increase compared to the previous year. Additionally, revenue surged by 33% year-over-year to reach $56.3 billion. Despite its roots in social media, Meta is now directed toward competing with AI frontrunners such as OpenAI and Anthropic. Looking ahead, Meta has projected its spending on AI to be between $125 billion and $145 billion by 2026, surpassing both analyst expectations and its own previous estimates. During a call with investors, CEO Mark Zuckerberg highlighted the need for increased spending on infrastructure, attributing this to rising component costs, especially for memory. The company has also invested heavily in building a metaverse that has not generated significant interest, and it will require even more capital to develop AI systems that may resonate with users. In a bid to enhance its AI capabilities, Meta undertook a significant hiring spree last year, bringing on over 50 AI specialists from rival firms. This effort contributed to the launch of its revamped AI model, Muse Spark, which debuted earlier this month. Despite reporting notable growth in AI usage following this release, the costs associated with creating and maintaining AI technologies continue to escalate. During the earnings call, one investor inquired about the company’s capital expenditure outlook for 2027, and the response was less than promising. CFO Susan Li indicated that the company is still navigating a complex planning process to determine future needs, admitting that they have often underestimated their computing requirements. In light of these developments, investor sentiment appears to be cautious. Following the earnings announcement, Meta's stock saw a decline of more than 5% in after-hours trading.