Despite putting up a very strong earnings report earlier in 2026, the year-to-date (YTD) performance of Meta Platforms (NASDAQ: META) has been anything but impressive. Overall, the Magnificent Seven stock is down nearly 9% YTD despite shares popping 10% the day following the company's earnings release.
Even recent reports of large cost-cutting measures couldn’t do much to help shares. On March 13, Reuters reported that Meta was planning layoffs that could affect 20% or more of its workforce. Meta rose just over 2% during the next trading day but has since given back those gains and more.
This tension creates a debate around whether potentially massive layoffs are a sign of weakness or strength for the tech giant. With huge capital expenditure (CapEx) spending, some view this move as a necessity in order to keep overall costs down. However, there is also reason to believe that this is part of Meta’s plan to drive internal efficiency using AI.
Meta’s Massive CapEx Causes Concern Amid Layoff Reports
In 2026, Meta plans to spend between $115 billion and $135 billion on CapEx as the company invests heavily in artificial intelligence (AI). At the midpoint, this would be a 73% increase from the $72.2 billion the firm spent on CapEx in 2025.
This is leading to the expectation that Meta’s free cash flow—one of the most important metrics in stock valuation—will plummet. Currently, analysts expect Meta to generate around $11 billion in free cash flow this year, which would represent an enormous decrease of nearly 75% YOY from 2025.
Given this dynamic, Meta is incentivized to lower costs, and 20% layoffs would go a long way in helping offset that reduction in free cash flow. However, the question is whether doing so is a reactionary move to counterbalance AI spending, or one that suggests Meta is reaping the benefits of AI efficiency. The company has made several statements that lean toward the latter interpretation.
Meta Touts Emerging AI Efficiency on Internal Workloads
In Meta's latest earnings call, CFO Susan Li noted that the use of AI tools is improving productivity within the organization. Specifically, she said that output per engineer had increased by 30% since the start of 2025, driven primarily by the adoption of agentic AI coding tools.
She went on to say that "power users" of these tools saw their output increase 80% YOY. Notably, Meta saw a “big jump” in agentic AI tool usage in Q4. Additionally, Li said that Meta expects the growth in productivity to accelerate in the first half of 2026. Ultimately, CEO Mark Zuckerberg said, "We're starting to see projects that used to require big teams now be accomplished by a single, very talented person." This underscores the potential that smaller teams can achieve the same output.
Overall, these statements sound like a company that is seeing real internal benefits from AI applications. The timeframe is also important within the context of the layoff discussion. Li notes that agentic tool usage increased dramatically in Q4, and that she expects productivity gains to accelerate in the first half of 2026.
This suggests that these benefits are recent and emerging. In turn, it implies that Meta isn’t simply holding layoffs in its back pocket as a last resort to offset spending. It is now seeing actual improvements in efficiency that lend credibility to a restructuring.
Li Expresses Concern Over AI Startups
Still, one statement made by Li at the Morgan Stanley Technology Conference is somewhat troubling for Meta. The CFO acknowledged that a company starting today would "use a lot of AI tools very differently." For Meta, a 20-year-old tech company, she noted that they do not want to "find ourselves behind companies that are being born today and that are AI-native from the very day of inception."
This points to the idea that Meta is somewhat fearful of AI-native tech startups that can be more efficient using AI tools from day one, suggesting that those firms may have an advantage over Meta, potentially because using AI to augment long-standing workloads is harder than using it to build from scratch.
That said, few question Meta’s dominance in social media. No matter how efficient AI-native firms are, replicating Meta’s massive user base of over 3.5 billion people is incredibly difficult.
If anything, Li’s statement pushes back on the idea that Meta is seeking layoffs due to its CapEx spending. Rather, the company simply sees AI adoption as a way to maintain its edge within an evolving tech landscape.
Meta Looks Undervalued as Shares Get Hit in 2026
Overall, the debate around Meta's potential layoffs stems from why the company is looking to cut costs. The idea that unsustainable CapEx is the main driver has some merit, but it also clashes with the efficiency gains the firm is seeing. Surging costs are one of the main overhangs on the stock. Thus, it feels counterintuitive that the market isn't rewarding the company for exploring cost-saving measures.
Still, the reports of 20% layoffs—which would likely equate to over 10,000 workers—remain unconfirmed. However, outlets have confirmed that the company just laid off several hundred workers. Investors are also digesting a separate legal overhang after a Los Angeles jury found Meta and Google liable in a social-media addiction case on March 25, with punitive damages still to be determined.
Amid all this, Meta has seen its shares fall to a forward price-to-earnings ratio near 20x, a level not seen since Liberation Day roiled the markets in April 2025.
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The article "Meta Reportedly Plans 20% Layoff: A Sign of Weakness or Strength?" first appeared on MarketBeat.
