Meta is laying off more than 1,000 employees in its Reality Labs organization and closing multiple in-house VR game studios, as the company reallocates spending, with funding moving away from some metaverse initiatives and toward wearables.

Meta confirmed the Reality Labs reductions at roughly 10% of the unit, and VR studios Twisted Pixel, Sanzaru Games and Armature Studio are being shut down, according to reporting from The Verge and Polygon. The team behind Supernatural will stop producing new content while continuing support for the existing product.

Reality Labs financial drag

The cuts land against a long-running financial drag in Reality Labs. In Meta’s Q3 2025 results, the company reported Reality Labs revenue of $470 million for the quarter and an operating loss of $4.432 billion; for the first nine months of 2025, Reality Labs posted an operating loss of $13.171 billion. That spending profile has been one reason investors track whether Meta’s hardware roadmap can produce meaningful, repeatable revenue beyond Quest headset cycles.

Meta tied its higher capex outlook to AI infrastructure buildout. In the same Q3 2025 release, Meta raised its 2025 capital expenditure outlook to $70–72 billion (including finance lease principal payments) and said capex dollar growth is expected to be “notably larger” in 2026 as compute needs expand, including more investment in data centers, servers, and third-party cloud capacity.

Shift toward AI wearables

The Verge reported Meta is moving funding from metaverse initiatives toward wearables, and that internal messaging has emphasized prioritizing experiences that can reach users beyond a VR headset footprint.

Meta’s newer wearables push has centered on its Ray-Ban smart glasses partnership with EssilorLuxottica, where production scale has been a key constraint; EssilorLuxottica CFO Stefano Grassi said on an October conference call that the company expects to reach 10 million units of annual wearable production capacity earlier than its original end-2026 target.

Workforce and AI spending context

For enterprise leaders, the Reality Labs cuts align with trends reported by Challenger and McKinsey on how AI spending cycles are reshaping operating models even when headline revenue growth remains strong.

Challenger, Gray & Christmas said “Artificial Intelligence (AI)” was cited for 54,836 announced job cut plans in 2025, and noted technology led private-sector job cuts last year as firms moved faster on developing and implementing AI.

McKinsey’s 2025 State of AI survey similarly reported that about a third of respondents expect their organizations’ workforce to decline in size as genAI use expands, even as companies hire for priority technical roles and restructure how work gets done.