Meta is preparing significant cuts to its metaverse division as CEO Mark Zuckerberg shifts investment toward AI-powered hardware.

Executives are discussing budget reductions of up to 30% for the metaverse group in 2026 — a deep cut that could include layoffs as early as January. The unit includes Horizon Worlds, Meta’s virtual universe product, and the Quest VR headset team, which together account for the majority of Reality Labs’ spending.

Meta confirmed the strategic pivot, telling Bloomberg that resources would be redirected from metaverse projects to AI glasses and wearables, areas the company says are gaining stronger momentum and showing clearer near-term commercial promise. The spokesperson noted that no broader structural changes are planned, but that “within our overall Reality Labs portfolio we are shifting some of our investment from Metaverse toward AI glasses and wearables.”

The cuts form part of Meta’s 2026 budget cycle, with Zuckerberg reportedly calling for a standard 10% reduction across divisions — a request he has made in previous years. But the metaverse unit was told to look for deeper savings this time, reflecting what insiders described as a lack of expected industry-wide competition and slower-than-hoped adoption.

Reality Labs, which houses Meta’s long-term bets on VR, AR and next-generation hardware, has accumulated more than $70 billion in losses since 2021. While Zuckerberg still believes virtual worlds will play a major role in the future of work and entertainment, he has increasingly emphasised AI models, AI assistants and smart glasses on earnings calls and in public statements. Meta’s Ray-Ban smart glasses, powered by Meta AI, have been one of the company’s most commercially viable hardware launches to date.

Investor pressure has also been mounting. Many analysts have criticised the scale of Reality Labs’ losses, arguing that the metaverse vision has not materialised at the speed Meta projected. Some, including Forrester’s Mike Proulx, predicted this year that Meta would eventually wind down Horizon Worlds entirely — a forecast now gaining fresh relevance in light of possible cuts.

Meanwhile, competitors have pulled ahead in the race for next-generation AI tools, with companies such as OpenAI and Google attracting the bulk of attention in recent months. Meta sees AI-infused hardware as the bridge between its long-term ambitions and the current market reality, and the latest shift indicates a company reorganising around that momentum.

Meta shares closed 3.4% higher on the news.