Meta's metaverse reversal nods to tech's new mantra: AI or the highway

Like a helicopter too heavy for lift off, tech companies are ditching anything they don't view as essential to get their AI plans off the ground.

Meta is planning to cut its metaverse division's budget by as much as 30% and considering job cuts as part of the move, writes BI's Jyoti Mann and Pranav Dixit. The decision comes as tech companies look to pare back anything not directly focused on giving them an edge in the AI wars.

Investors loved the move, with the stock finishing the day up almost 3.5%.

For Meta, ditching the metaverse has been a long time coming. (We actually declared it dead back in checks notes May 2023.) During Meta's most recent earnings call, the word "metaverse" wasn't even used once.

It's quite the reversal from when the metaverse was the literal inspiration for the entire company's rebrand from Facebook. But it's tough to keep making the case for funding something that burns billions of dollars and doesn't directly generate a ton of revenue.

Especially when you need to make room for AI plans that are burning billions of dollars and have yet to directly generate a ton of revenue.

Meta is unlikely to be the last company to cut non-AI-related fat.

AI projects are really expensive. From hardware to talent to power, there doesn't appear to be a "cheap" way to do it. The space is also incredibly competitive, and even the first movers are feeling the heat.

That's forcing companies to rethink their allocation of resources, particularly when it comes to projects that don't get them to their AI goals.

Even those focused solely on AI are recalibrating their approach. OpenAI is sidelining ancillary projects to solely focus on beefing up ChatGPT.

Tech companies with business lines already benefiting from the AI boom hold an advantage. Amazon, Google, and Microsoft's cloud businesses are experiencing an uptick from AI investments.

Those players aren't standing still, though. Microsoft CEO Satya Nadella tapped a new advisor to "rethink the new economics of AI."

Next month could be a good indication of how much tech companies are willing to throw overboard to keep their AI dreams afloat. Several companies conducted layoffs at the start of the year as part of their annual culling.

Where companies draw the line will be interesting to watch. Money-losing endeavors not tied to AI will be obvious targets, but what about the stuff that is bringing in money but doesn't fit a company's future AI vision? How much will companies cut from what already is to support what could be?