Meta Platforms 10% Layoff Raises a Bigger Question About AI Spending

Key Points

• Meta Platforms stock has seen large swings in 2026, being up as much as 12% and down as much as 20%
• Through recently announced layoffs, the company is looking to soothe fears around its elevated spending
• However, shares are not seeing an uptick on this news—here's why

Shares of Meta Platforms NASDAQ: META have faced a notable degree of volatility in 2026. The stock started off the year hot, being up around 12% near the end of January. The company’s impressive Q4 2025 earnings report drove an over 10% single day gain.

However, a convergence of pressures then hit the stock. This included artificial intelligence (AI) spending fears, legal losses, and the U.S.-Iran conflict that drove down the market as a whole. Near the end of March, Meta was down 20% on the year.

The stock has recovered considerably since that point, now down less than 10% in 2026. Meta’s return has hovered near this level since the end of April, after shares took a 8.6% hit following its Q1 2026 earnings report.

Meta is making moves to fight against the biggest headwind to its performance: increasing AI capital expenditure (CapEx) forecasts. The firm is undertaking some of its largest layoffs in recent memory, aimed at offsetting AI investment. However, markets don’t appear to be buying the story.

Meta Initiates 10% Layoff—But for Much Different Reasons Than in the Past

In mid-May, reports emerged that Meta is laying off 8,000 employees. These job reductions account for approximately 10% of Meta’s total employee base.

The move marks the company’s most significant workforce shake-up since its “Year of Efficiency,” which took place between 2022 and 2023. This initiative cut 21,000 jobs.

However, there are significant differences between these recent cuts and the Year of Efficiency reductions.

Somewhat counterintuitively, Meta undertook one of its most aggressive hiring sprees ever from 2020 to 2022, during the height of the COVID pandemic.

By the end of 2022, Meta’s employee count had nearly doubled from the end of 2019, rising from around 45,000 to over 86,000. This came as COVID lockdowns pushed people to spend much more time on the internet and flock to e-commerce purchasing. This led to Meta’s sales growth soaring 37% year-over-year (YOY) in 2021.

The company loaded up on employees, believing that this was the beginning of a long-term tailwind for its business. However, as Meta admitted, this proved not to be the case, with sales dropping 1% YOY in 2022. In 2023, Meta dropped its employee count by 22% to around 67,000 in response.

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

Meta just posted its highest revenue growth in years at 33% YOY. Thus, demand is very strong, but it is being met with greater investments in technology rather than employees. In this sense, the move is much less a sign of weakness compared to mass layoffs in the past.

Layoffs Are Unlikely to Win Over Investors' Hearts

Still, Meta shares haven’t really moved since recent layoffs began. This comes as investors likely don’t believe the cuts will have a huge impact on its financials.

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

Meta will also likely incur a significant charge to pay for severance packages. When it cut 10,000 employees in March 2023, its expected pre-tax severance charge and other personnel costs were $1 billion, which equates to $100,000 per employee. Holding this per-employee metric steady, the company may incur around $800 million in charges from the latest layoff, reducing the net near-term benefit.

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 whatever it saves from layoffs and allocate this to more AI investment, or if its CapEx guide will hold steady.

Either way, compared to its massive CapEx spending, the potential benefit of the layoffs is not much of a needle mover. This is likely one of the reasons shares have not benefited. Additionally, CEO Mark Zuckerberg told employees that he “does not expect more company-wide layoffs this year."

This pushes back on past reports that the company would lay off 20% of its workforce in 2026. Investors may have viewed this as a disappointment, with actual cuts being much smaller.

Growth Is the Key to Meta’s AI Journey

In aggregate, this data shows that Meta will not be able to justify its AI spending through layoffs alone. Rather, the company will need to grow its revenues, and eventually free cash flow, to do so.

In this context, the fact that Meta is also reassigning 7,000 employees to AI-related roles may be more impactful than the layoffs. After the layoffs, Meta’s employee count will fall to around 71,000. Thus, the firm will reallocate around 10% of its remaining workforce to AI-related roles. This increased focus on AI could allow the firm to better utilize its investments and drive growth.