By Martin Baccardax
Obi-Wan Kenobi introduced the world to the "Jedi mind trick" early on in the Star Wars saga when he assured weak-minded Storm Troopers that "these aren't the droids you're looking for" during a search ordered by the evil Darth Vader.
Back home, in a galaxy not terribly far away, Meta Platforms CEO Mark Zuckerberg looks like he might be trying something similar. But his attempt to use cuts to his ill-fated metaverse project to distract investors, who are not so malleable, from the billions he continues to shovel into the artificial-intelligence furnace isn't likely to work nearly as well.
Bloomberg reported Thursday that Meta is planning "meaningful" budget cuts, perhaps as high as 30%, to the metaverse project that Zuckerberg first unveiled in the summer of 2020. That's likely more than three times the reductions Zuckerberg is asking from the rest of the company, which includes Facebook, WhatsApp, and Instagram.
Reality Labs, the division responsible for metaverse, has lost $70 billion since the beginning of 2021, including the $4.4 billion in red ink reported over the last quarter.
Investors haven't really punished the group for that particular folly, nor, you could argue, for the host of other big ideas that have come and gone under Zuckerberg's tenure (Facebook as a bank, Facebook as a dating website, Facebook as the home to a new cryptocurrency).
But they haven't been as forgiving with respect to AI, and tinkering around the fringes of a division that was already headed for the dumpster isn't likely to change that.
Shares in the company are up firmly today but have shed more than 11% since third-quarter earnings in late October. That report, while stronger than analysts had forecast, included beefed-up commitments on AI capex and operating expenses that will dig deep into profit margins and weaken its balance sheet.
Meta's capital spending over the three months ending in September totaled $18.8 billion, more than double the tally for the same period last year. The company told investors to expect a full-year figure as high as $72 billion, with total expenses growing at "a significantly faster percentage rate in 2026 than 2025."
Investors were also unsettled by the fact that, unlike much larger rivals such as Google parent Alphabet, Microsoft, and Amazon, Meta doesn't have a commercial cloud division to generate revenue as a direct offset to its borrowing. And China-based TikTok is eating into its domestic share of short-form video traffic.
An antitrust probe in Europe looms, as well.
D.A. Davidson analyst Gil Luria says Meta's decision to put all its chips on the AI table suggests Zuckerberg feels that technology is closer to profitability than any of his metaverse hardware, such as display glasses.
"Zuckerberg needs to move some assets from Reality Labs to AI so he can maintain profit margins into next year and continue to grow earnings at the same rate of its healthy revenue growth," he told CNBC Thursday.
The group's move to source Google's custom tensor processing unit accelerators for its own data centers, possibly as early as 2027, "could reduce future compute costs, potentially helping to address a material overhang on the stock," according to Bank of America analyst Justin Post.
Meta will first need to find a way to get back into the AI race. Its Llama 4 large-language model launch earlier this year was seen as a disappointment, and its effort to poach big-name AI executives from rivals in the pursuit of so-called 'superintelligence' has yet to bear fruit. And it has to convince investors it is pursuing efficiency while committing billions of capital to a fiercely competitive arena.
In the end, investors are likely to follow another nugget of wisdom from the Obi-wan cannon: "Your eyes can deceive you. Don't trust them."
And don't put too much faith in metaverse cost cuts.
Write to editors@barrons.com
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December 04, 2025 13:36 ET (18:36 GMT)
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