Meta is wrestling with one of the tech industry's steepest dilemmas: how to fund an unprecedented infrastructure bet whilst managing the financial impact on existing operations. The company is reportedly weighing layoffs that could eliminate 20% or more of its workforce, according to Reuters, potentially affecting roughly 16,000 of its 79,000 employees.
The move is part of the company's broader effort to manage the growing costs tied to artificial intelligence infrastructure whilst also pushing deeper into AI-driven operations. A Meta spokesperson said this is "speculative reporting about theoretical approaches", yet the numbers underlying the discussion tell a story of escalating pressure on the company's balance sheet.
The scale of Meta's AI ambitions has become extraordinary. The company's capital expenditure for 2026 is projected to reach as much as $135 billion, nearly double the $72 billion it spent the previous year. That trajectory extends further: Meta has said it plans to invest up to $600 billion in data centre infrastructure by 2028, as part of a long-term bet that AI will reshape nearly every product the company builds.
For investors accustomed to Meta's historical software-based model, this shift represents a fundamental transformation. Quarterly costs and expenses rose 40% to US$35.1bn, reducing the operating margin to 41%, compared with 48% a year earlier. The company is moving from a high-margin advertising business into capital-intensive infrastructure operations. Yet Meta's advertising revenue remains robust; revenue for the three months to the end of December rose 24% year-on-year to US$59.9bn, and full-year revenue climbed 22% to US$201bn. The challenge is whether that cash flow can sustain both the infrastructure spending and the current workforce.
Meta is increasingly relying on AI tools to handle a wider range of internal tasks, a shift the company believes will improve efficiency and reduce operational costs. The company has reported a 30% increase in output per engineer, with projects that used to require big teams now accomplished by a single very talented person. If those efficiency gains materialise at scale, they create a logical but painful case for workforce reduction.
The investment strategy itself carries genuine risks. Meta's spending surge arrives after a turbulent stretch for its AI model development, with the company facing criticism last year after early versions of its Llama 4 models produced misleading benchmark results and later abandoned plans to release its largest model, called Behemoth. The company's superintelligence team is working on a new model known internally as Avocado, though early performance has yet to meet internal expectations.
The broader tech industry is watching. Some pundits, and even executives like OpenAI's Sam Altman, have suggested that many of these cuts are "AI-washing," where executives use AI as cover for other issues, such as over-hiring during the pandemic. Whether Meta's layoffs represent necessary efficiency gains or overreaction remains unclear, particularly given the company's recent financial strength.
No final timeline has been set for the potential layoffs, and the exact scale of the job cuts is still being debated internally. If implemented, the cuts would exceed the company's last major restructuring; the cuts would mark the largest round of layoffs since Mark Zuckerberg announced sweeping restructuring during the company's "year of efficiency" in 2022 and early 2023, when Meta cut about 11,000 jobs in November 2022, followed by another round of layoffs that affected nearly 10,000 employees.
The tension at Meta's core remains unresolved. The company is generating strong cash returns from advertising whilst gambling that AI infrastructure spending will eventually produce returns commensurate with the investment. That bet demands difficult choices about how many people the company actually needs to employ.