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Meta reported a strong first quarter, but investors focused on two expensive lines in the earnings report: another Reality Labs loss and a much larger AI spending plan.
Good to Know
Meta still has the cash to fund big bets. In Q1, the company reported $26.8B in net income, up 61% from a year earlier. Revenue rose 33% year over year to $56.3B.
Even so, the market did not react well. Meta shares fell more than 5% in after-hours trading after the company gave a higher spending outlook tied mainly to AI infrastructure.
Reality Labs also kept burning cash. The division, which handles AR glasses, VR headsets, and VR software, lost $4B in the quarter. That number now feels almost normal for Meta. Over 21 quarterly reports since 2021, Reality Labs has lost $83.5B, equal to about $4B per quarter.
At the same time, Meta has pulled back from earlier metaverse plans and shifted more attention toward AI. The company wants to compete more directly with OpenAI and Anthropic, and that race costs more each quarter.
CEO of Meta Mark Zuckerberg said on the investor call:
“We are increasing our infrastructure capex forecast for this year,” Meta CEO Mark Zuckerberg said on a public call with investors on Wednesday. “Most of that is due to higher component costs, particularly memory pricing […] We are very focused on increasing the efficiency of our investments.”
Meta also spent heavily last year to hire AI talent. The company brought in more than 50 AI researchers and engineers from rivals, then released the overhauled AI model Muse Spark earlier in April. Zuckerberg said Meta AI usage saw “large increases” after that release.
Still, investors wanted more clarity on 2027 costs. CFO of Meta Susan Li did not give them a firm number.
“We aren’t providing a specific outlook for 2027 capex, and we are, frankly, undergoing a very dynamic planning process ourselves as we’re working through what our capacity needs will be over the coming years,” replied Meta CFO Susan Li. “Our experience so far has been that we have continued to underestimate our compute needs.”
That line explains the market reaction pretty well. Meta can afford large AI spending, but investors now face a company with huge profits, steady Reality Labs losses, and no clear ceiling on compute costs.