Wall Street interprets Meta's latest developments: Model delays highlight Google's advantages, layoffs and cost-cutting struggle to offset high AI infrastructure costs

According to Zhitong Finance APP, recently, news regarding the delay in the release of Meta's (META.US) cutting-edge AI model and its layoff plans has attracted market attention. Analysts generally expressed slight disappointment over the model delay and believe that the layoffs aimed at cost savings will have minimal impact on its projected spending plan of up to $169 billion for 2026.

Reports last Friday indicated that internal testing at Meta showed its AI model "Avocado" lagging behind competitors Google (GOOGL.US), OpenAI, and Anthropic in areas such as reasoning, coding, and writing, leading to a forced delay in the release schedule.

According to reports over the weekend, to cope with the high costs of AI infrastructure and achieve efficiency gains from AI, Meta is planning to lay off over 20% of its workforce.

AI Model Delay Raises Concerns

JP Morgan emphasized that, aside from its advertising business, Meta's AI model is "another key component of its bullish narrative," and thus expressed "slight surprise" at the delay. The institution pointed out that given Meta's massive investment scale, its margin for error is already very limited.

JP Morgan analysts stated: "Cutting-edge models are crucial for Meta to realize its superintelligent vision, maintain control over its computing platform in the long term, and expand AI products beyond advertising. The market is also closely watching whether the substantial capital and operational expenditures related to its foundational model team can deliver the expected results."

Bank of America believes that although the delay is "disappointing," the adjustment of the release timeline also indicates that Meta is placing more emphasis on product performance quality rather than rushing to market.

Bank of America analyzed: "Considering that the foundational model team was only established from late Q2 to early Q3 of 2025, we believe that the originally planned release in Q1 was indeed quite challenging, and the adjusted timeline reflects a more robust development cycle. However, the challenges currently faced by Meta also highlight Google's strong position in the large language model field. Referring to the development trajectory of Gemini, it may take Meta several years to build a top-tier large language model."

Impact of Layoff Measures

JP Morgan estimates that a 20% layoff ratio could save Meta approximately $6 billion in expenses. However, even if this savings is fully converted into profits, it would still be difficult to "significantly impact" the company's expected total spending base for this year.

The institution further estimates that if this $6 billion cost saving is included in the 2027 profits and tax impacts are considered, it could increase its GAAP earnings per share by about $2, higher than its current forecast of $31.50.

Bank of America holds a similar view, believing that the cost reductions from layoffs are unlikely to materially lower the company's full-year spending guidance.

Bank of America estimates that this move could save the social media and tech giant up to $8 billion, but this would only offset part of the projected $45 billion GAAP spending increase in its model.

Notably, Jefferies analysts stated that if Meta is willing to undertake such large-scale layoffs while increasing AI investments, it indicates that "AI is increasingly becoming a key driver of productivity enhancement." Jefferies further pointed out: "This is not only significant for Meta, but will also profoundly impact the entire internet and software industry, prompting investors to reassess the relationship between company headcount, growth, and profit margins. We believe this may further increase pressure on the per-seat charging model in the Software as a Service sector. Clearly, part of Meta's consideration for this layoff is to address the rising costs of AI infrastructure, particularly the sharp increase in capital expenditures."

The firm added that, in the context of increasing macroeconomic uncertainty, Meta's layoff measures appear logical. Given the high correlation between advertising spending and GDP growth, the company's proactive measures to enhance efficiency and respond to potential economic weakness are "completely reasonable."