Meta’s VR Layoffs Signal Zuckerberg’s AI-First Strategy

Meta Signals a Pivot: Shifting Resources from VR to AI Amidst Layoffs and Strategic Realignment

In a significant strategic pivot, Meta Platforms is reportedly scaling back its virtual reality (VR) ambitions, reallocating resources from its Reality Labs division towards its rapidly advancing artificial intelligence initiatives. This course correction comes as the company initiates layoffs impacting employees focused on VR development and shutters several studios dedicated to creating VR content.

Sources familiar with the matter indicate that the layoffs, reported to exceed 1,000 jobs, represent approximately 10% of the Reality Labs hardware division, responsible for the Quest VR headsets, and the Horizon Worlds social VR platform. Meta’s Chief Technology Officer, Andrew Bosworth, is expected to address the Reality Labs team regarding these changes.

This move signals a clear prioritization of AI, a field that has increasingly captured the attention and investment of Silicon Valley and the broader tech industry. CEO Mark Zuckerberg has aggressively pursued top AI talent, notably acquiring Scale AI founder Alexandr Wang in a $14.3 billion deal to lead Meta’s AI strategy. Furthermore, Vishal Shah, who previously led Meta’s metaverse efforts, was appointed Vice President of AI Products in October. The company has also raised its 2025 capital expenditure forecast to between $70 billion and $72 billion, with expected dollar growth to be “notably larger” in 2026, underscoring its commitment to AI infrastructure and development.

The VR studios being shut down include Armature Studio, Twisted Pixel, and Sanzaru, along with the Oculus Studios Central Technology unit. Other studios, such as Ouro Interactive, which was established to create first-party content for Horizon Worlds, are also experiencing job cuts. Supernatural, a VR fitness app acquired by Meta, has been moved to maintenance mode, indicating a reduction in new content development.

This strategic shift was foreshadowed in December when Meta announced its intention to redirect resources within Reality Labs’ budget from VR initiatives to AI-powered glasses and wearable devices. A Meta spokesperson confirmed this reallocation, stating, “This is part of that effort, and we plan to reinvest the savings to support the growth of wearables this year,” without offering specific details on the layoffs.

While Meta’s VR ventures have yet to achieve widespread market traction, the company has seen more promising results with AI-powered wearables. A key example is its partnership with EssilorLuxottica for the development of Ray-Ban Meta smart glasses. The Meta Ray-Ban Display glasses, launched in September with a built-in display, have experienced significant demand in the U.S., leading to a delay in their global debut due to inventory constraints. EssilorLuxottica’s CFO, Stefano Grassi, noted that production capacity for these glasses is expected to be met earlier than initially planned.

Despite the downsizing in VR, Meta is not entirely abandoning the space. The company is actively engaging with developers from platforms like Roblox, known for its user-generated game experiences and vast young user base, to build content for Horizon Worlds. This strategy mirrors successful models seen in platforms like Roblox and Minecraft, which have cultivated massive, engaged communities. Horizon Worlds, however, has struggled to reach comparable user numbers, with Meta aiming to transform it into a more accessible mobile application.

This recalibration follows Meta’s substantial investment in VR, beginning with the $2 billion acquisition of Oculus VR 12 years ago. The Reality Labs division has accumulated over $70 billion in cumulative losses since late 2020, with a $4.4 billion loss reported in the third quarter against $470 million in sales.

Concurrently, Meta is navigating a competitive AI landscape, striving to keep pace with rivals like OpenAI and Google. The company plans to release its next major AI model, codenamed Avocado, in the first quarter of this year. However, Meta’s stock performance has lagged behind Alphabet and the Nasdaq, a trend that has continued into the early part of 2026.

The challenges with Horizon Worlds have been evident since its inception. A widely criticized avatar image posted by Zuckerberg in August 2022 highlighted graphic quality issues, prompting internal demands for improvements. Developers within the platform have expressed frustration over a lack of specific usage statistics, hindering their ability to create more engaging experiences. In response, Meta has directed third-party developers to focus on creating more simplistic, kid-friendly games, akin to Roblox and Minecraft.

Meta has also introduced initiatives such as a $50 million Creator Fund to incentivize the development of in-game experiences within Horizon Worlds, with a particular emphasis on mobile integration. The company aims to facilitate seamless access to Horizon Worlds for users of its Facebook and Instagram platforms.