Meta’s foray into the metaverse is proving to be an increasingly expensive gamble. In its first-quarter earnings report released Wednesday, the company revealed that Reality Labs, the unit spearheading CEO Mark Zuckerberg’s vision of immersive digital worlds, posted an operating loss of $4.2 billion.

That’s a staggering burn rate for a business division that brought in just $412 million in revenue during the same period.

The numbers, while slightly better than Wall Street’s forecasts – analysts had anticipated a loss of $4.6 billion on revenue of $492.7 million — still underscore the long and costly road ahead for Meta as it tries to pioneer a new frontier in computing through virtual and augmented reality.

Reality Labs is the division behind the Quest VR headsets and the Ray-Ban Meta Smart Glasses, key pieces of Zuckerberg’s blueprint for a mixed-reality future where people work, play, and interact through immersive digital platforms. But so far, investors have seen little beyond losses. Since the company pivoted heavily toward the metaverse in late 2020, even rebranding from Facebook to Meta in 2021, Reality Labs has hemorrhaged more than $60 billion.

A Skeptical Wall Street Watches Closely

That sustained spending has raised eyebrows across Wall Street. While Meta’s core advertising business continues to perform well, buoyed by a rebound in digital ad markets and growing traction with AI tools that help drive engagement, its heavy investment in the metaverse remains a sore spot.

Zuckerberg has insisted that building the next computing platform will take time, patience, and billions in upfront capital. But as Reality Labs racks up quarterly losses north of $4 billion, the runway for such a vision appears increasingly narrow, especially in a macroeconomic environment where costs are rising and regulatory threats are mounting.

Trump Tariffs Add Fresh Headwinds

Those costs are set to rise further. President Donald Trump’s recent imposition of sweeping tariffs on Chinese-made electronics, including components used in VR and AR devices, is expected to pressure Meta’s already stretched hardware margins. While the company hasn’t disclosed exactly how much of its supply chain is China-dependent, analysts warn the tariffs could result in significantly higher production costs for the Quest headset line and the Ray-Ban smart glasses.

That added burden may force Meta to either absorb the cost increases, deepening its losses or pass them on to consumers — a move that could dampen demand in a market already struggling to go mainstream.

Layoffs Hit Oculus Studios

Meta is also quietly trimming its metaverse ambitions in other ways. Last week, the company confirmed layoffs within its Oculus Studios unit — the team tasked with creating first-party content and games for its VR platforms. While the number of affected employees remains undisclosed, the move adds to a growing list of cost-cutting measures inside Reality Labs.

“Some teams within Oculus Studios are undergoing shifts in structure and roles that have impacted team size,” a Meta spokesperson said in a statement. “These changes are meant to help Studios work more efficiently on future mixed reality experiences for our growing audience, while still delivering great content for people today.”

The cuts follow a broader trend of tech companies scaling back moonshot projects and headcount as they confront tighter capital markets and investor pressure for profitability. For Meta, which has laid off tens of thousands of workers over the past two years in a bid to “flatten” its structure, Reality Labs remains the largest and most conspicuous money sink.

Still Betting Big on a Future Few Can See

Despite the financial and political headwinds, Zuckerberg appears unwavering. In internal memos and public remarks, he continues to describe the metaverse as a long-term investment that could rival the smartphone era in its eventual impact. Yet many remain unconvinced that Meta’s version of the metaverse – centered on headsets, avatars, and virtual workspaces — will ever achieve the kind of mass adoption needed to justify the colossal expenditure.

Even within the tech community, there’s growing competition and philosophical divergence over what the future of digital interaction should look like. Apple has taken a more premium and restrained approach with its Vision Pro headset. Meanwhile, OpenAI and other AI developers are steering the narrative in a different direction entirely, toward seamless, intelligent interfaces that don’t require users to strap devices to their heads.

As AI reshapes how people interact with technology — and how companies envision the future of work, communication, and play — the question is whether Meta’s metaverse model will still fit that world, or be left behind by a more practical, less immersive paradigm.

At a time when Washington is tightening the screws on China’s tech sector, Nvidia CEO Jensen Huang is striking a different tone — one that suggests the race for AI dominance isn’t as lopsided as U.S. policy might hope.

Speaking to reporters Wednesday at a technology conference in the U.S. capital, Huang offered a stark reality check: China is not trailing the United States in artificial intelligence, at least not by much.

“We are very close,” Huang said. “Remember, this is a long-term, infinite race.”

It was a moment of candor that clashed sharply with prevailing narratives in Washington, where policymakers are increasingly treating China’s AI ambitions as something to be thwarted rather than matched. For Huang, however, the threat isn’t just China’s growing capability — it’s the risk that the U.S. might hobble itself through overregulation and protectionism.

Huang, who has led Nvidia through its meteoric rise as the engine room of the AI revolution, didn’t mince words when he spoke of Huawei, the Chinese firm that has been a central target of U.S. sanctions.

“They’re incredible in computing and network technology,” Huang said. “They have made enormous progress in the last several years.”

Huawei, though largely cut off from American tech due to a trade blacklist, has reportedly been building its own AI chips for domestic customers — a move that speaks to Beijing’s push for self-reliance in strategic technologies. And while the U.S. has sought to curb those ambitions through export controls, Nvidia’s own experience shows the limits of that approach.

Earlier this month, the Trump administration imposed new restrictions on Nvidia’s H20 chips, a China-compliant version of its Hopper architecture, barring shipments without a license. That decision, Nvidia said, will cost the company an estimated $5.5 billion in revenue. The irony? The H20 was designed precisely to comply with prior U.S. curbs, underscoring how rapidly Washington is shifting the goalposts.

For Huang, the fallout highlights a deeper risk, not just to Nvidia, but to America’s tech leadership itself.

“This is an industry that we will have to compete for,” he said. “We should focus on making U.S. companies more competitive, not just limiting others.”

Nvidia is trying to do just that. The company recently announced plans to invest $500 billion in AI infrastructure in the U.S. over the next five years, part of a broader push to onshore manufacturing and strengthen its domestic footprint. Huang confirmed Wednesday that Nvidia intends to build its AI devices in the U.S., with Foxconn set to assemble AI servers near Houston.

“With willpower and the resources of our country, I’m certain we can manufacture onshore,” he said.

President Trump, speaking the same day, applauded Nvidia’s domestic push and referred to Huang as “my friend Jensen” — a sign that despite current regulatory hurdles, the company still commands political favor in Washington’s shifting sands.

But Wall Street remains wary. Nvidia’s stock has dropped more than 20% this year, erasing part of the staggering gains it posted in 2024, when demand for AI chips seemed insatiable. The stock fell nearly 3% on Wednesday, reflecting investor anxiety over tighter export rules, global market instability, and growing competition abroad — not just from AMD and Intel, but from homegrown Chinese challengers like Huawei.

As China races to replicate or leapfrog technologies it can no longer easily import, the landscape is beginning to fracture. The world is inching toward two AI ecosystems: one rooted in Silicon Valley, the other in Shenzhen. In such a world, Huang’s warning that this is an “infinite race” seems less like a metaphor, and more like the defining reality of a new tech Cold War.

Against this backdrop, Nvidia’s challenge now is to stay at the forefront of that race, without being tripped by the very country it calls home.

The Startup Incentive Construct explains why startups often outperform established companies despite having fewer resources. The central idea is that older companies, while having advantages like money and experience, often misalign their incentives when addressing problems. They tend to adapt problems to fit their existing incentives, causing them to focus on the wrong issues and lose out to startups. Startups possess different incentives, giving them inherent advantages. Established companies often experience an “Innovation Hangover,” making it difficult for them to sacrifice current revenue for new opportunities.

In this piece, I explain why startups win, despite the efforts of older companies who challenge them in new areas they are pioneering. The older companies can come with money, experience and technology, but most times, they are solving problems, with the wrong incentives.

Consequently, they adjust the problems to accommodate their incentives and in the process, solve an entirely different problem, resulting to a loss. You read it from me: African and specifically Nigerian startups, you can win over the big players. Your incentives are different, and those are inherent advantages for you.

The established companies have what I have called Innovation Hangover which is an inertia to cannibalize existing revenue sources for new opportunities. See it this way: If you run a treasury operation in a bank which will yield $5,000 profit but your fintech unit (a subsidiary) can do the same for $200, would you dismantle that treasury unit, and allow the fintech unit to serve the public because one fintech startup has started offering the service for $200?

That is not what we do most times because of the revenue/profit hangover. So, what happens is this: to fix that problem, the bank has to create a new market friction, and try to solve it. Possibly, that new problem can yield for the bank $1,000 profit, and it can feel that it has innovated, and has challenged the startup on pricing. Indeed, it could offer more features and services than what the fintech startup is offering for $200.

Yet, that is not the original friction which the standalone startup went for. Typically, over time, the startup can still win because the incumbent is hanging onto the established profits, and solving entirely new problems. I have called this Startup Incentive Construct.