• Mizuho analyst Lloyd Walmsley reaffirms an Outperform rating and $815 price target on Meta, citing potential for a significant rally.
  • Planned cuts of up to 30% to Metaverse spending could add approximately $2 per share to 2026 EPS, projected at $29.50.
  • The strategic shift is seen boosting confidence in the company's aggressive generative AI investments, with a bull case scenario targeting $1,245.

A strategic recalibration at Meta Platforms Inc., signaled by potential deep cuts to its Metaverse spending, is drawing bullish calls from Wall Street, with analysts at Mizuho Securities seeing a clear path for shares to rally. The firm's analyst, Lloyd Walmsley, reiterated an Outperform rating and an $815 price target on the stock, according to a note to clients reviewed by Roic AI.

The catalyst, according to the analysis, is a planned reduction in spending for the company's Reality Labs division, which could reach up to 30%. This discipline, the note argues, could add roughly $2 per share to the firm's 2026 earnings per share estimate of $29.50. The move is interpreted not as a retreat from innovation, but as a sharpening of focus. "The potential reallocation of capital from lower-returning metaverse investments toward higher-priority AI initiatives demonstrates a pragmatic and shareholder-friendly approach," the Mizuho note stated, paraphrasing the analyst's view.

This comes against the backdrop of Meta's formidable financial performance. The company posted Q3 2025 revenue of $51.2 billion, a 26% year-over-year increase, with its core Family of Apps business generating $50.8 billion. Yet, its capital expenditures are soaring, reaching $19.4 billion in that quarter alone, with full-year 2025 guidance between $70-72 billion. The planned Metaverse cuts, therefore, are seen as a lever to manage this immense investment outlay more efficiently, potentially freeing billions for the data centers and compute power needed for its generative AI ambitions.

Efforts to streamline spending have been an ongoing focus for Meta's management, but the scale of the potential cut to Reality Labs—a division that posted $470 million in Q3 revenue, up 74% year-over-year but still operating at a significant loss—marks a notable shift in tone. It suggests a more measured, returns-oriented approach to the long-term bet on the metaverse, even as products like Quest headsets continue to ship. A spokesperson for Meta declined to comment on specific analyst reports or internal budget deliberations.

For investors, the calculus is straightforward: greater cost discipline in one ambitious area could accelerate profitability and self-funding in another. The company's AI investments are already deeply integrated into its advertising engine and content recommendations, which serve its daily active user base of 3.5 billion people. Time spent on Instagram, for instance, has increased more than 30% year-over-year, partly driven by AI-curated video content. Redirecting resources could further cement this advantage.

With the company guiding for Q4 2025 revenue between $56-59 billion and signaling even larger capital expenditure growth for 2026, the market is keenly watching how Meta allocates its vast resources. The Mizuho bull case of $1,245 hinges on successful execution of this dual strategy: maintaining dominance in social media and digital advertising while judiciously building a leading position in the generative AI arena. The anticipated spending cuts appear to be the first major test of that balancing act in the new year.

Correction: An earlier version of this article misstated the Q3 2025 net income figure. It was $2.7 billion, or $1.05 per share.