If you missed Nvidia in 2016... (From Behind the Markets)
At a Glance
- Meta's advertising business is firing on all cylinders, with the firm forecasting 30% growth next quarter.
- However, investors are eager to see the company pull different AI levers to monetize its massive investment.
- Meta is pivoting its Reality Labs business to stem losses, while business messaging revenue is growing briskly.
Meta Platforms' (NASDAQ: META) latest earnings report made one thing abundantly clear: the firm’s advertising business is by far its most important growth driver. That business is operating at a pace not achieved in years. However, with the firm expected to spend somewhere around $125 billion on capital expenditures in 2026, other growth drivers do need to come into the fold.
During its earnings call, Meta provided new information on its non-core business ambitions. While AI-enabled advertising is pushing the Magnificent Seven company forward today, these non-core operations are meant to do so tomorrow.
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Reality Labs Reversal: Meta Sees Losses Peaking in 2026
Meta continues to shift its Reality Labs priorities toward investments with a more realistic path to success. In the earnings call, CEO Mark Zuckerberg deemphasized the "metaverse," and talked up the firm’s artificial intelligence (AI) glasses, noting that sales more than tripled in 2025. He said that going forward, most of the investment in Reality Labs will go toward glasses and wearables.
As this shift occurs, Meta expects Reality Labs' losses to be similar to last year but to peak in 2026. Reality Labs has seen its operating losses widen every year since Meta began reporting them.
The segment lost $19.2 billion in 2025, more than four times the $4.5 billion it lost in 2019. Certainly, losing another $19 billion or so in 2026 wouldn’t be positive.
However, it is good to see the company forecast an end to larger and larger losses. This provides some hope that the trend in Reality Labs' profitability can reverse in 2027.
This forecast, coming as Meta increases its emphasis on AI glasses, likely isn't a coincidence. Glasses clearly have a much larger addressable market compared to virtual reality headsets. At present, the potential size of the market provides the only realistic path toward shipping enough hardware to make Reality Labs profitable.
Despite Meta claiming that sales of AI glasses soared, total Reality Labs revenue rose less than 3% in 2025. Meta needs to generate much better growth in 2026 to show that AI glasses can actually be a long-term driver of success.
Business Messaging Revenue Soars, AI Drives Internal Efficiency
Meta’s other important “non-core” initiative is business messaging. This is where businesses pay to interact with Meta users through direct messages, primarily on WhatsApp. Revenue from this shows up in the company’s “Family of Apps Other Revenue” line item. Here, sales rose by 54% to $801 million, driven by WhatsApp paid messaging. Business messaging remains a very small part of Meta’s revenue today. However, it is growing much faster than the total business, making it poised to become increasingly important over time.
Meta also provided an interesting tidbit about driving internal efficiency with AI.
It noted that largely due to the adoption of AI coding tools, the firm saw a 30% increase in output per software engineer. Among AI coding tool “power users”, output increased by 80%.
As Meta invests hundreds of billions in AI, it is also very important for it to reduce costs and increase efficiency using the technology. These statements are an early indication that Meta is finding ways to do just that.
In general, Meta mentioned rolling out new AI tools and models throughout 2026. The details aren’t all there yet, but the company did take some time to highlight its acquisition of Manus. Meta noted that integrating Manus extends its suite of solutions for customers.
Zuckerberg implied that Manus could help add new business lines. It’s uncertain what form this would take. However, adding a premium tier to its Ads and Business Manager that includes Manus’s capabilities could be an option. Overall, Manus has the potential to provide Meta with another non-advertising AI monetization pathway.
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META: Building More AI Pillars Around Advertising
Meta’s latest earnings report provided it with something it sorely needed: time. Amid mounting CapEx spending, Reality Labs' losses, and uninspiring LLaMa model releases, markets seemed to be growing impatient with Meta.
By showing that AI is driving significant improvements in its core advertising business, Meta has taken some of the heat off itself. Investors will want to see Meta make progress on non-core initiatives during 2026, showing the ability to capitalize on its five pillars for AI growth.
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