Meta Navigates Regulatory Scrutiny and Strategic Realignment

The tech giant Meta finds itself navigating dual challenges: heightened regulatory examination of a major artificial intelligence acquisition and a strategic pullback in its virtual reality division. These developments raise questions about the sustainability of CEO Mark Zuckerberg’s aggressive AI investment strategy amid mounting pressures.

Strategic Cuts in the Metaverse Division

Concurrent with its regulatory concerns, Meta is implementing significant cost-saving measures within its hardware operations. The company’s Reality Labs unit, responsible for VR and metaverse development, has eliminated approximately 1,000 positions, representing about 10% of the division’s workforce.

The restructuring primarily affects teams working on Quest headsets and the Horizon Worlds metaverse platform. While Chief Technology Officer Andrew Bosworth reaffirmed Meta’s “continued strong investment” in VR, he acknowledged that market growth has been “slower than anticipated.” Since late 2020, Reality Labs has accumulated losses exceeding $70 billion—a staggering sum for a segment that has yet to achieve mainstream adoption.

Industry observers see the move as a necessary correction. Jitesh Ubrani, an analyst at IDC, characterizes the VR headset market as niche, noting that while specific user groups remain engaged, a broad market breakthrough is not imminent. These cuts signal a sharper prioritization of resources and a trimming of less profitable future-oriented projects.

Acquisition Under the Microscope in Beijing

A primary source of current tension stems from Meta’s $2 billion acquisition of AI startup Manus in December 2025. The company, founded in China before relocating its headquarters from Beijing and Wuhan to Singapore, develops AI agents for an international clientele.

Chinese regulators have broadened their investigation into the deal. According to Bloomberg, the probe now extends beyond initial reviews of national security risks and potential technology transfer to include possible violations of rules governing cross-border capital flows, tax regulations, and overseas investments.

The investigation centers on whether sensitive data from Manus could have been improperly transferred abroad during its integration into Meta. The situation is complicated by the practice of “Singapore-washing,” where firms of Chinese origin re-domicile to Singapore to enhance their global positioning. Although Manus never offered its core product in China, the relocation of employees to Singapore in July appears to have raised additional concerns among regulators.

Should investors sell immediately? Or is it worth buying Meta?

Despite these headwinds, market sentiment ended the week on a positive note. After initial pressure, Meta’s shares reversed course to close at $659.24 on Friday, marking a daily gain of roughly 2.2%. This contributed to a weekly advance of over 6%, even as the stock remains slightly negative for the month.

The High-Stakes AI Investment Thesis

Despite the slowdown in VR, artificial intelligence remains Meta’s central growth frontier. The Manus purchase is a key component of Zuckerberg’s AI strategy, which aims to build autonomous AI agents and related services.

The company embarked on a significant spending spree in 2025, heavily investing in AI infrastructure and acquisitions—most notably the $14 billion deal for Scale AI in June. The objective is to enhance platforms from Facebook and Instagram to WhatsApp with AI capabilities and unlock new revenue streams.

This ambitious strategy carries a cost for shareholders. Since the October quarterly report, where CFO Susan Li indicated that AI expenditures would continue rising—with potential 2026 investments surpassing $100 billion—the stock has shed approximately 17% of its value. The ongoing regulatory questions surrounding Manus underscore that geopolitical factors present a persistent risk for U.S. tech firms acquiring targets with Chinese ties, even if analysts consider it unlikely that Beijing could fully unwind a completed transaction.

A review of technical indicators reveals a stock trading about 9% above its 200-day moving average and roughly 7% below its recent 52-week high, suggesting a fundamentally sound upward trend that has experienced intermittent pullbacks.

Upcoming Quarterly Report in Focus

The next critical test is scheduled for Wednesday, January 28, 2026, when Meta releases its fourth-quarter and full-year 2025 results after the U.S. market close. Key topics for the subsequent conference call (1:30 a.m. PT) will include:

• The 2026 outlook for AI capital expenditures
• Progress on integrating Manus into Meta’s AI platform
• The financial and strategic impact of the Reality Labs restructuring
• Advertising revenue trends for the Threads platform

Analyst sentiment remains broadly favorable. The consensus rating on Wall Street stands at “Moderate Buy,” with an average price target near $823, well above current trading levels. While Wells Fargo recently reduced its target from $795 to $754, it maintained an “Overweight” rating. The crucial question for investors is whether Meta can use concrete figures and clear priorities to demonstrate that its substantial AI investments and VR cutbacks will ultimately fortify the company’s competitive position in the medium to long term.