META Stock Faces AI Cost Scrutiny As Layoffs Fail to Allay CapEx Concerns

Shares of Meta Platforms NASDAQ: META face a significant level of volatility in 2026. The stock started the year hot, rising nearly 12% in late January. The company's impressive Q4 2025 earnings report fueled a one-day gain of more than 10%.

However, a confluence of pressures then hit the stock. These include fears of the use of Artificial Intelligence (AI), legal losses, and the US-Iran conflict that is slowing down the overall market. By the end of March, Meta was down 20% on the year.

The stock has recovered significantly since that point, now down less than 10% by 2026. Meta's return has been close to this level since the end of April, after shares took an 8.6% hit following its Q1 2026 report.

Meta is making moves to combat the biggest storm in its operations: rising AI capital expenditure (CapEx) forecasts. The company is undertaking one of the biggest layoffs in recent memory, aimed at rebalancing AI investments. However, the markets don't seem to be buying the story.

Meta Begins 10% Layoff—But For Very Different Reasons Than Before

In mid-May, reports surfaced that Meta was laying off 8,000 workers. These layoffs cost about 10% of Meta's total workforce.

The move marks the company's most significant staff turnover since the “Year of Work,” which takes place between 2022 and 2023. The program cut 21,000 jobs.

However, there is a big difference between this latest reduction and the Good Performance Year Reduction.

In some ways, Meta is doing one of its most aggressive hiring sprees from 2020 to 2022, during the height of the COVID pandemic.

By the end of 2022, Meta's workforce had almost doubled from the end of 2019, rising from about 45,000 to more than 86,000. This comes as the COVID-19 lockdown forces people to spend more time online and flock to e-commerce. This has resulted in Meta's sales growth increasing by 37% year-on-year (YOY) in 2021.

The company has laid off workers, believing that this is the beginning of a long-term trend in its business. However, as Meta admits, this has not proven to be the case, with sales down 1% YOY in 2022. By 2023, Meta is reducing its workforce by 22% to around 67,000 in response.

Meta's past cuts were a product of weaker-than-expected demand. That is not the case today at all.

Meta recently posted its highest revenue growth in years at 33% YOY. Thus, the demand is very strong, but it is met with a greater investment in technology than in labor. In this sense, the movement is not a sign of weakness compared to the mass layoffs of the past.

Redundancies Can't Win Investors' Hearts

Still, Meta shares haven't really taken off since the latest layoff began. This comes as investors may not believe that the cuts will have a significant impact on their funds.

Notably, analysts at Morgan Stanley estimated that a 20 percent reduction in workforce would generate annual savings of between $3 billion and $7 billion. At 10%, it's fair to say that this forecast would drop to $1.5 billion to $3.5 billion.

Meta will also incur a large fee to pay for waiver packages. When it cut 10,000 jobs in March 2023, its expected cost of tax severance and other labor costs was $1 billion, which equates to $100,000 per job. Holding this per-employee metric constant, the company may have to pay roughly $800 million in costs from recent layoffs, which has reduced near-term profits.

Overall, Meta's savings would be a drop in the bucket compared to the midpoint of its 2026 CapEx guidance of $135 billion. Furthermore, it's unclear whether Meta will simply take any savings from layoffs and allocate these to additional AI investments, or if its CapEx guidance will hold firm.

Either way, compared to its massive CapEx usage, the potential benefit of layoffs isn't much of a needle mover. This is one of the reasons why stocks are not profitable. Additionally, CEO Mark Zuckerberg told employees that he “does not expect any additional layoffs at the company this year.”

This reverses previous reports that the company will lay off 20% of its workforce by 2026. Investors are likely to see this as a disappointment, as the actual cuts have been much smaller.

Growth Is Key to Meta AI's Journey

Taken together, this data shows that Meta will not be able to justify its use of AI on layoffs alone. Instead, the company will need to increase revenue, and ultimately free cash flow, to do so.

In this context, the fact that Meta has reassigned 7,000 employees to AI-related jobs may have a bigger impact than layoffs. After the layoffs, Meta's workforce will drop to approximately 71,000. Therefore, the company will also allocate 10% of its remaining employees to AI-related tasks. This increased focus on AI can allow the company to better leverage its investment and drive growth.

Before you consider Meta Platforms, you'll want to hear this.

MarketBeat tracks Wall Street's top and most effective research analysts and the stocks they recommend to their clients every day. MarketBeat identified five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and Meta Platforms wasn't on the list.

Although Meta Platforms currently has an Average Buy rating among analysts, top analysts believe these five stocks are the best.

View Five Stocks Here

Click the link to see MarketBeat's guide to investing in 5G and which 5G stocks show the most promise.

Get This Free Report