Meta's $125 Billion Pivot: Inside the Metaverse Retreat and the AI Talent Grab

Saxs Persson now holds the position. The former Epic Games executive, known for his work on the Unreal Engine ecosystem, was hired during the October 2025 reshuffle and elevated to head of the metaverse products group after Aul's departure. His appointment makes him the third leader of the division since late 2025—a destabilizing pace of turnover for a unit that was once Meta's highest-priority initiative .

Reality Labs: Layoffs, Studio Closures, and a 30% Budget Cut

The leadership churn is happening against a backdrop of brutal cost-cutting. In October 2025, Meta laid off roughly 600 employees across its AI and metaverse groups . Those cuts were followed by far deeper reductions: in January 2026, Meta eliminated approximately 1,000 to 1,500 positions within Reality Labs—roughly 10% of the division's workforce .

The layoffs came alongside the closure of multiple first-party VR game studios, including Armature Studio, Sanzaru Games, and Twisted Pixel—studios responsible for well-regarded VR titles like Asgard's Wrath 2 and Resident Evil 4 VR . The VR fitness app Supernatural, acquired for over $400 million in 2023, was also placed into maintenance mode .

Financially, the numbers tell a stark story. Reality Labs has accumulated more than $80 billion in operating losses since 2020, including $19.2 billion in 2025 alone . Bloomberg reported in December 2025 that Reality Labs had been told to cut its budget by roughly 30% for 2026—even as Meta's overall capital expenditure guidance was being raised .

Horizon Worlds: The Metaverse Goes Mobile

Nowhere is the strategic retreat more visible than in the fate of Horizon Worlds, the social VR platform that was meant to be Meta's proof-of-concept for the metaverse.

On March 18, 2026, Meta announced that Horizon Worlds would be delisted from the Quest Store on March 31 and fully shut down on VR headsets by June 15. The platform would survive only as a mobile app . The announcement landed like a confession: after five years and countless promotional events featuring Mark Zuckerberg's legless avatar, the company was admitting that VR wasn't the platform for social virtual worlds.

Then came the reversal. Within days, CTO Andrew Bosworth posted on Instagram Stories: "I just decided today that we are going to keep running Horizon Worlds in VR" . The whiplash revealed a leadership team in disagreement about how—or whether—to keep the metaverse alive.

By May 2026, Meta's official developer blog had settled on a middle ground. The company would "explicitly separate" the Quest VR platform from the Worlds platform, with Worlds becoming "almost exclusively mobile" going forward. The VR version would persist in some reduced form, but development resources would flow overwhelmingly to mobile .

The AI Capex Context: $125–145 Billion in 2026

The metaverse contraction and the AI expansion are two sides of a single balance-sheet decision.

Meta's 2026 capital expenditure has been guided upward twice. The initial range of $115–135 billion was revised on April 29, 2026, during the Q1 earnings call, to $125–145 billion. CFO Susan Li attributed the increase to higher component pricing—particularly memory—and additional data center capacity for future years .

For scale, Meta spent roughly $39 billion on capex in 2024 and $72 billion in 2025. The 2026 midpoint of $135 billion represents an 87% year-over-year increase and nearly doubles the 2025 figure. Meta is now one of four Big Tech companies—alongside Amazon, Microsoft, and Google—planning a combined $725 billion in AI capital expenditures in 2026 .

The contrast with Reality Labs is deliberate. The metaverse unit is being told to live within a shrinking budget while AI receives nearly every incremental dollar. The headcount reallocation follows the same pattern: key leaders like Vishal Shah and hundreds of engineers have been transferred into AI roles rather than laid off, signaling a deliberate talent migration rather than top-down cost-cutting .

What This Means

The company that renamed itself for the metaverse is now betting its future on artificial intelligence. The metaverse hasn't been officially canceled—Quest headsets continue to ship, and some VR development persists—but the social-metaverse vision that justified the 2021 rebrand has been systematically dismantled. Horizon Worlds has been demoted to a mobile side project. Reality Labs' budget is shrinking. And the executive who spent four years building that vision is now a product manager for AI.

Meta's message is clear in its capital allocation. In 2026, the company will spend more on AI infrastructure in a single year than it has spent on Reality Labs since its inception.