Meta's AR/VR Bet Continues to Drain Cash

When Meta released its quarterly earnings report on Wednesday evening, a colleague highlighted that the company's Reality Labs division, which handles AR glasses, VR headsets, and VR software, lost $4 billion.

My initial reaction was a yawn. Meta losing another $4 billion on Reality Labs felt entirely expected—almost a given. It's like noting that the sky is blue.

Then it struck me: that predictability is precisely what's remarkable. For Meta, such losses have become routine. Over the past 21 quarters, starting in 2021, Reality Labs has accumulated a staggering $83.5 billion in losses, averaging roughly $4 billion per quarter. That's absolutely insane!

What's equally astonishing is that as Meta scales back its metaverse ambitions, its investment in artificial intelligence is set to reach even more astronomical levels.

To be fair, Meta isn't short on cash. In the first quarter of this year, the social media behemoth reported a net income of $26.8 billion—a 61% increase from the previous year. Revenue also jumped 33% year-over-year to $56.3 billion.

Yet, despite its social media roots, Meta's primary focus is now keeping pace with AI frontrunners like OpenAI and Anthropic. The company projects its capital expenditures for 2026 to be between $125 billion and $145 billion, surpassing both analyst forecasts and its own earlier estimates.

"We are raising our infrastructure capital expenditure forecast for this year," Meta CEO Mark Zuckerberg told investors on a public call Wednesday. "The main driver is higher component costs, especially for memory [...] We remain intensely focused on improving the efficiency of our investments."

Meta already poured vast sums into building a metaverse that failed to capture public interest. Now, developing a sought-after AI superintelligence will require even deeper pockets. Last year, Meta embarked on a costly hiring campaign, recruiting over 50 AI researchers and engineers from rivals. This push helped the company launch its newly revamped AI model, Muse Spark, earlier this month. While Zuckerberg noted "significant increases" in Meta AI usage since the launch, the costs of building and maintaining these AI products continue to climb.

During the earnings call, one worried investor asked for a capital expenditure outlook for 2027. The answer provided little comfort.

"We are not offering a specific 2027 capex outlook, and honestly, our own planning process is highly dynamic as we assess our capacity requirements for the coming years," explained Meta CFO Susan Li. "Our experience to date has shown that we consistently underestimate our computing needs."

So, despite a strong quarterly performance, Meta's investors are not celebrating. The company's stock fell more than 5% in after-hours trading.