Meta exceeds earnings expectations and predicts strong future growth

• Meta invested $14.3 billion in Scale AI to acquire founder Alexandr Wang and colleagues to lead its TBD unit developing advanced AI models, with a new model planned for release in first half of 2026
• Capital expenditures related to AI data center expansion are projected at $21.97 billion for the quarter, with online advertising sales expected to reach $56.98 billion
• Reality Labs unit laid off over 1,000 VR employees this month and is estimated to post a $5.67 billion operating loss on $940.8 million in sales, contributing to over $70 billion in total losses since late 2020

Meta Earnings Summary

Key Financial Expectations:

Meta reported fourth-quarter earnings on Wednesday with analyst expectations of $58.59 billion in revenue. Online advertising sales were projected at $56.98 billion, with daily active users expected to reach 3.58 billion. Capital expenditures related to data center expansion were estimated at $21.97 billion for the quarter.

AI Strategy Overhaul:

Meta significantly restructured its artificial intelligence operations in 2025, highlighted by a $14.3 billion investment in Scale AI to acquire founder Alexandr Wang and key colleagues. Wang now leads Meta's TBD unit, tasked with developing advanced AI models after the company's departure from open-source development last spring. Meta is testing a new AI model set for release in the first half of 2026 and committed substantial investment to Corning for AI data center glass manufacturing.

Reality Labs Challenges:

The Reality Labs unit, responsible for VR, AR, and metaverse technology, faced significant restructuring with over 1,000 employee layoffs this month. Meta is shifting resources away from VR toward AI and smart glasses like the Ray-Ban Meta products. Analysts projected Reality Labs would post a $5.67 billion operating loss on $940.8 million in sales for Q4, contributing to over $70 billion in cumulative losses since late 2020.

Market Implications:

CEO Mark Zuckerberg defended the aggressive AI spending despite investor concerns, emphasizing long-term profitability potential. The layoffs and strategic pivot have raised concerns about a "VR winter" among developers. Investors are closely watching whether Meta's substantial AI investments will deliver returns in 2026 amid intensifying competition from Microsoft and Google in data center infrastructure.