Wall Street interprets the latest developments of Meta (META.US): Model delays highlight Alphabet Inc. Class C (GOOGL.US) advantages, layoffs and cost-cutting measures cannot resist the high costs of AI infrastructure.

Recently, news about Meta's delayed release of cutting-edge AI models and plans to lay off employees has attracted market attention. Analysts generally express slight disappointment at the model delay and believe that the cost-saving layoff measures will have minimal impact on its $169 billion 2026 spending plan. Last Friday, reports indicated that Meta's internal tests showed that its AI model "Avocado" performed behind competitors Alphabet Inc. Class C (GOOGL.US), OpenAI, and Anthropic in areas such as inference, coding, and writing, forcing the release plan to be postponed. According to reports over the weekend, in order to address high AI infrastructure costs and achieve efficiency improvements brought by AI, Meta is planning to lay off over 20% of its workforce. AI model delay sparks attention JPMorgan emphasizes that, in addition to its advertising business, Meta's AI models are another key component of its "bullish narrative," so the delay is somewhat unexpected. The institution points out that given Meta's huge investment scale, its margin for error is very limited. JPMorgan's analysis states: "Cutting-edge models are crucial for Meta to achieve its super-intelligence vision, long-term control of its computing platform, and expanding AI products beyond advertising. The market is also closely watching whether the significant capital and operating expenditures related to its foundational model team can deliver the expected results." Bank of America Corp believes that while the delay is "disappointing," the adjustment of the release schedule shows that Meta is more focused on product performance quality rather than rushing to market. Bank of America's analysis states: "Considering that the foundational model team was only established between the end of the second quarter and the beginning of the third quarter of 2025, we think the initially planned targets for release in the first quarter were indeed challenging, and the adjusted timeline reflects a more robust development cycle. However, the challenges Meta currently faces also highlight Alphabet Inc. Class C's strong position in the field of large language models. Looking at Gemini's development trajectory, it may take Meta several years to build a top-notch large language model." Impact of layoff measures JPMorgan estimates that a 20% layoff rate could save Meta approximately $6 billion in expenses. However, even if this savings is entirely converted into profit, it would be difficult to have a significant impact on the company's expected total expenditure base for the year. The institution further estimates that if these $6 billion in cost savings are included in 2027 profits and considering tax effects, it could increase its GAAP earnings by about $2 per share, higher than its current forecast of $31.50. Bank of America Corp also holds a similar view, believing that the cost savings from layoffs are unlikely to substantially reduce the company's full-year spending guidance. Bank of America estimates that this could save the social media and tech giant up to $8 billion, but this would only offset a portion of the projected $45 billion GAAP spending growth in its models. It is worth noting that Jefferies Financial Group Inc. analysis stated that if Meta is willing to lay off such a large number of employees while increasing AI investment, it indicates that "AI is increasingly becoming a key DRIVER for productivity." Jefferies Financial Group Inc. further points out: "This is not only significant for Meta but will also have a profound impact on the entire internet and software industry, prompting investors to reassess the relationship between company personnel size, growth, and profit margins. We believe that this may further increase the pressure on the software as a service sector to charge based on seats. Clearly, a key consideration of Meta's layoffs is to address AI infrastructure costs, particularly the sharp rise in capital expenditures." The institution adds that in the context of increasing macroeconomic uncertainty, Meta's layoff measures appear logical. Given that advertising spending is highly correlated with GDP growth, the company's proactive measures to improve efficiency and counter potential economic weakness are "completely understandable."