Meta’s Strategic Pivot: Heavy AI Investment Amidst Legal and Operational Shifts

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Meta Platforms Inc. is making a decisive and costly strategic turn, channeling immense resources into artificial intelligence. This aggressive reallocation of capital is causing even seasoned technology investors to reassess their positions. Concurrently, the company is scaling back on personnel and projects within its once-prioritized Metaverse division. Adding to the current climate of uncertainty, a significant legal challenge is set to commence in the United States.

The most impactful revelation for markets is Meta's revised investment forecast. The company now anticipates capital expenditures (Capex) to reach between $115 billion and $135 billion in 2026, a substantial increase from the approximately $72 billion planned for 2025. This dramatic uptick sends an unambiguous message: CEO Mark Zuckerberg aims not merely to participate in the AI arms race but to lead it.

This ambitious spending plan is underpinned by robust operational performance. For the fourth quarter of 2025, Meta reported revenue of $59.89 billion and earnings per share (EPS) of $8.88, both exceeding market expectations. Investors interpreted these results as validation that the company possesses the financial strength to fund its intensified investment cycle.

Reality Labs Faces Strategic Downsizing

As funding flows toward AI, Meta is implementing cuts elsewhere. Recent layoffs have specifically targeted the Reality Labs division. Reports indicate that over 1,000 positions, representing roughly 10% of the unit's workforce, were eliminated in January. The company also shuttered several virtual reality game studios.

This restructuring clarifies the strategic direction: resources are being shifted away from pure virtual reality endeavors toward developing AI-integrated wearables and smart glasses. The apparent focus is on deploying practical AI applications with nearer-term utility over longer-term bets on the Metaverse.

Impending Legal Proceedings Add Risk

Beyond operational shifts, Meta faces mounting legal headwinds. Jury selection in a lawsuit brought by the state of New Mexico is scheduled to begin tomorrow (February 2, 2026). The state alleges that Meta's platforms facilitate child exploitation through dangerous algorithmic recommendations.

A notable aspect of this case is its progression to a courtroom trial, as opposed to being settled or dismissed beforehand. An unfavorable ruling could establish a legal precedent, potentially inviting a wave of similar litigation.

Analyst Interpretations and Price Targets

On Wall Street, the massive Capex guidance is largely viewed not as wasteful spending but as a necessary growth investment. Following the quarterly report, several firms raised their price targets for Meta shares:

• Pivotal Research: Maintained a Buy rating with a $910 price target.
• Truist Securities: Increased its price target to $900.
• Bank of America: Issued a new price target of $885.

The prevailing analyst rationale suggests that rising advertising revenue and deeper AI integration across Meta's platforms could justify a valuation premium, even amidst a steep investment climb.

Regarding recent trading activity, Meta's stock closed Friday's session at $718.10, trading just below its recent 52-week high.

Market attention on February 2 will be divided between the start of the New Mexico trial and the longer-term assessment of whether Meta's historic investment wave can successfully translate its AI ambitions into measurable financial growth.