This round of budget cuts will mainly affect the teams responsible for developing the Meta Horizon Worlds virtual world platform and the Quest virtual reality hardware. At a deeper level, the reductions stem from the fact that metaverse technologies have failed to deliver the expected broad-based industry boom and competitive landscape. This decision marks a shift for the company from an aggressive long-term bet to a more pragmatic phase that emphasizes current financial health and core growth engines.

“Stopping the Bleeding” = Improving Profit Margins

The most direct reason for Meta’s strategic pullback is the ongoing and growing massive losses at its metaverse division, Reality Labs. Since 2021, the division has accumulated more than 70 billion USD in losses. Although it generated a record 1.08 billion USD in quarterly revenue in the fourth quarter of 2024, operating costs for the same period reached 6.05 billion USD, leaving an operating loss of 4.97 billion USD for the quarter. For full-year 2024, the division’s operating loss widened to 17.7 billion USD.

Such enormous “resource consumption” has long made investors uneasy. Analysts have been calling on Meta to cut or exit its metaverse investments so that more resources can be allocated to AI projects. As a result, this budget cut is seen as management’s response to market pressure — a clear “stop the bleeding” signal aimed at improving the company’s overall profit margins.

The budget reduction does not mean Meta is completely giving up on future hardware exploration, but rather that it is carrying out a major reallocation of resources. Reports indicate that the funds saved from the metaverse division are expected to be redirected to other, more promising future projects within Reality Labs, such as AI-powered glasses and other wearable devices.

This pivot has already been visible in the company’s public messaging. CEO Mark Zuckerberg has gradually reduced his mentions of the metaverse in public appearances and earnings calls, shifting instead to focus on the company’s large AI models, the Meta AI chatbot, and more practically oriented hardware products such as Ray-Ban smart display glasses. Recently, the company also poached a senior design executive from Apple to strengthen its consumer hardware capabilities.

Market Reaction and Technical Analysis

Wall Street gave a warm welcome to the budget-cut news. The sharp rise in the share price on the day clearly reflects investor sentiment: they prefer cost-control measures that can enhance profitability over a grand narrative that consumes resources for years with a vague path to profit. The market views this move as a positive sign of strengthened financial discipline and a shift of resources toward higher-return areas such as AI.

As of the morning of December 5, the key technical event for Meta’s share price was its attempt to test and hold above the 50-day, 100-day, and 200-day moving averages. In particular, the 50-day moving average — a widely watched indicator of short-term trend momentum — has been below the closing price since October 29. This breakout on expanding volume is a positive short-term signal indicating strong buying interest. However, whether the stock can achieve a solid breakout and turn this level from resistance into support is the first key factor in determining whether the rebound can evolve into a full-fledged reversal.

In the coming weeks, the price action will depend on how the stock behaves around the key 672–685 USD resistance zone. If it manages to break through this area on high trading volume, upside room will open, with the next target around 720 USD. Conversely, if it encounters resistance there and pulls back, it may re-enter the 640–685 USD trading range to digest profits and build further momentum. At the same time, it is worth noting that the new EU antitrust investigation into WhatsApp’s AI services, although temporarily ignored by the market, remains a potential policy risk factor.

Over the next few months, consolidation of the trend will require a resonance between fundamentals and technicals. The market will closely monitor the concrete implementation of the metaverse budget cuts and their impact on the company’s profit and loss statement. In addition, whether the company’s pivot toward AI hardware (such as smart glasses) can produce successful products will be key to sustaining long-term market confidence. The 815 USD target price and bullish scenario up to 1,245 USD given by Mizuho reflect some analysts’ optimistic assessment of Meta’s long-term value.

Challenges Facing Meta

The shift in strategic focus means that the company’s long-term leadership position in the VR/AR space may be challenged, and its product roadmap could slow. Second, competition in the AI field is extremely fierce and requires ongoing, massive capital expenditures (Meta has already planned to invest tens of billions of dollars in AI infrastructure), with no guarantee of emerging as a clear winner. Finally, these budget cuts may be accompanied by layoffs in January next year, making it a direct management challenge for leadership to stabilize morale and retain key talent.

In summary, Meta’s substantial cuts to its metaverse budget have earned short-term applause from the capital markets, but on this more focused and pragmatic path, the company will face long-term tests from market competition, technological breakthroughs, and internal integration. Whether its share price can continue to rise will depend on whether its AI business can deliver a new profit story that is more compelling and concrete than the metaverse.