Meta Platforms (META 0.43%) CEO Mark Zuckerberg's "year of efficiency" is paying off in style for patient shareholders. Shares are still over 20% below all-time highs from 2021 but are narrowing the gap as Meta stock has rallied an incredible nearly 170% so far in 2023.  

Like any good tech CEO does these days, Zuckerberg had a lot to say about AI during the last earnings call. But one area continues to confound many investors: the metaverse, embodied in the Reality Labs (RL) segment, which keeps reporting billions in operating losses.

Meta isn't backing off of its long-term goal. Should this be a cause for concern, or is Meta still a solid investment? 

AI is where it's at right now

Meta undertook several rounds of layoffs early this year to rightsize its operations. But now that this cost-cutting initiative is over, Meta's next order of business is AI.

But how much is the right amount? Zuckerberg said on the call:

The other major budget point that we're working through is what the right level of AI [capital expenditure] is to support our roadmap. Since we don't know how quickly our new AI products will grow, we may not have a clear handle on this until later in the year.

Capital expenditures, or capex, is money spent on property and equipment. Billions of dollars have been poured into new data center infrastructure in recent years (Meta operates its own data centers for Facebook, Instagram, and WhatsApp), and it's been paying off.

One area where this is apparent is Reels, Facebook and Instagram's answer to the sudden emergence of TikTok. Zuckerberg said AI-powered video ranking and recommendations are driving time spent on the social apps, with Reels monetization at $10 billion a year (up from $3 billion a year ago).

Other key near-term developments include supporting WhatsApp business messaging and click-to-message ads, as well as AI tools to help marketers better monetize their ad campaigns. But the one area that's creating some uncertainty in timing of capex spend is generative AI.

Meta recently announced its open source Llama 2 large-language model will be available to developers via Microsoft's cloud platform Azure, on Amazon AWS, and on other public clouds. Meta recently announced alongside Qualcomm that these AI algorithms would be available on mobile devices starting in 2024.

Without knowing how fast these AI services will grow, Meta is lowering its spend on infrastructure to a range of $27 billion to $30 billion for 2023, down from the previous guidance for $30 billion to $33 billion. With revenue once again on the rise (expected to be up as much as 25% year over year in Q3) and capex falling, Meta's earnings are getting ready to rip.

And then there's the metaverse

All this talk of cost-cutting and boosting profits may sound a bit contradictory. When zooming in on the RL segment, Quest AR/VR headsets, and related content, you can uncover all sorts of unprofitability. Through the first half of 2023, RL reported an operating loss of $7.7 billion on measly sales of $616 million (which is down from sales of $1.15 billion the first half of 2022).

Of course, Meta is getting ready to release its next-gen Quest 3 headset this autumn for $500, which should go head-to-head against Apple's (AAPL -0.35%) ludicrously priced Vision Pro of $3,500. Quest 3 will likely provide some sort of boost for RL. Nevertheless, this metaverse project doesn't exactly jibe with the 2023 "year of efficiency." 

Or does it? 

Owing to the name change to "Meta" a couple of years back, Zuckerberg and company provide a view into their metaverse operation unlike any other business out there. I wonder what Apple shareholders would think if CEO Tim Cook and CFO Luca Maestri provided a quarterly update on the billions of expenditures poured into Vision Pro over the years.

But alas, no such clarity -- and probably for the best. Corporate investment schemes of such size are just simply very expensive, and can take many years until a payoff. As proof, I'd once again point out the WhatsApp acquisition, which Facebook made all the way back in 2014 for $16 billion but is only just now really beginning to monetize.  

At any rate, as I've explained, AI investments now can help pave the way to a robust metaverse business years later. An AI-enhanced ad platform, as well as new generative AI tools like Llama 2 -- open sourced for developers to tinker with -- can help make building a 3D world a much more doable endeavor. And in the meantime, Meta is working on perfecting the hardware with its Quest headsets, something it really needs to help perpetuate its ad-based software business for the long term. Disruption from peers like Apple (when it cut Meta's access to ads on iOS) isn't ideal.

Partnering with content companies like Roblox (RBLX 1.35%), which Zuckerberg reminded everyone is coming to a Quest headset near you on the earnings call, could certainly help with AR/VR adoption too.

Is Meta a buy?

After the stellar Q2 earnings report and even better Q3 outlook, I'm holding my position I already own in Meta. In late 2022, when the stock was trading for a single-digit price-to-earnings ratio, it was an insane deal.

Nevertheless, for investors who think AI and eventually the metaverse can be the next big thing in computing platforms, Meta stock is at the very least worth keeping tabs on. The stock trades for about 22 times expected 2024 earnings, which is not cheap, but not an unreasonable price tag either.