Meta Platforms Inc. (META) is apparently rethinking its Metaverse ambitions, and Wall Street is here for it. Analysts upgraded their outlook on the social media giant after reports surfaced that the company is considering cutting up to 30% of its 2026 Metaverse budget—primarily targeting the Quest virtual reality unit and Horizon Worlds, which represent the lion's share of metaverse-related spending.

JPMorgan analyst Doug Anmuth maintained an Overweight rating with an $800 price target, while Bank of America Securities analyst Justin Post reiterated a Buy rating with an $810 price forecast. Both see the potential cuts as a smart financial move that could significantly boost earnings.

The Math Behind the Cuts

Anmuth projects total Reality Labs spending of $21 billion in 2025 and $26 billion in 2026. If you assume the Metaverse accounts for roughly 50-60% of Reality Labs spending while glasses and Orion make up the remaining 40-50%, a 30% reduction in metaverse spending could save up to $5 billion.

Here's where it gets interesting: if those savings came entirely from headcount reductions, and assuming an average cost of $350,000-$400,000 per employee, Meta could potentially cut approximately 11,000-13,000 positions. That would represent 15-17% of its third-quarter workforce.

The broader context matters too. Bloomberg reported that Meta's budgeting process is targeting 10% cuts across the board, though Anmuth pointed out that similar reduction requests have appeared in previous years. The analyst emphasized the importance of maintaining guardrails for GAAP EPS growth, operating income expansion, and positive free cash flow during the company's heavy capital expenditure investments.

Anmuth expects operating expense savings to help moderate the "significantly faster" expense growth Meta flagged in its third-quarter earnings report, while supporting funding for capex and depreciation. For now, he's sticking with his 2026 projections: total expenses of $153 billion (up 30%) and capex of $115 billion (up 61%).

The Earnings Impact

Post from Bank of America highlighted that CEO directives are also pushing executives to identify 10% expense reductions across other functional areas, which aligns with prior-year planning exercises.

Since Meta's third-quarter 2025 earnings—when the company warned that total expenses would rise "significantly" faster in 2026 than 2025—the stock has dropped 11% while the S&P 500 stayed flat. Today's news could shift assumptions about expense growth in 2026 and 2027, reinforcing the view that Meta remains financially disciplined.

Post estimates Reality Labs will generate about $2.2 billion in revenue, $21 billion in expenses, and a net loss of roughly $18.5 billion in 2025. A 30% reduction in Reality Labs spending could save $6-6.5 billion, translating to roughly $2 per share in after-tax EPS—about 6-7% upside to the Street's 2026 EPS estimate of $29.74.

Across the rest of the business, a 10% cost reduction could yield an additional $10 billion in savings, though Post expects these cuts will likely be reallocated to data center and AI investments rather than dropping straight to the bottom line.

Looking Ahead

Post emphasized that while overall costs are still expected to grow materially in 2026, Meta appears to have flexibility in cost allocations to protect EPS growth even amid macroeconomic pressures. The shift in Reality Labs spending is constructive for sentiment because it addresses investor concerns about long-term Metaverse investments that haven't yet delivered meaningful returns.

Looking toward 2026, Post sees multiple growth drivers: increased usage, AI enhancements, monetization ramps in Short-Form Video and messaging, and new ad opportunities across Threads, Meta AI, and Marketplace. These could push revenue beyond Street estimates.

He highlighted key upcoming catalysts including the launch of Meta Business AI, a new frontier model expected mid-2026, and a new wave of user-facing AI products leveraging Meta's LLM in the second half of 2026. Post expects Meta could initially guide 2026 expenses to grow 28-38% year over year, maintaining flexibility to adjust spending based on revenue performance.

Price Action: Meta stock traded 1.63% higher to $672.39 at last check on Friday.