• Meta's AI agent, Muse, is unprofitable due to "very high compute costs," CEO Mark Zuckerberg says.
• Meanwhile, Meta expects Reality Labs, its AI glasses division, to lose $15 billion next year.
• The social media giant has a plan to fix that.

Meta says some of its biggest cash incinerators could finally start turning profits.

The social media giant, which generated over 97% of its quarterly revenue from ads, has faced persistent questions from investors about the lack of profitability in its AI and hardware initiatives.

Meta CEO Mark Zuckerberg addressed those concerns head-on during its third-quarter earnings call on Wednesday.

Zuckerberg said that Muse, the AI assistant it launched last month, is unprofitable since it's "very compute intensive to run." Meta expects to start turning that around next year by massively improving Muse's efficiency.

"If compute efficiency continues improving quickly for another few years, which we think is highly likely, then Muse will be highly profitable over multiple years," he said.

Meta plans to make money from Muse by taking a small transaction fee off of purchases it drives, Zuckerberg said at Meta's Connect conference last month.

Zuckerberg added that Muse, which launched only in the US and Canada, wasn't launched globally due in part to the amount of compute it requires. (Meta's North American users are generally its most lucrative.)

Zuckerberg also struck a positive note about its cash-hemorrhaging Reality Labs division, which makes products like Meta Ray-Bans and virtual reality glasses.

Meta expects Reality Labs to narrow its losses to about $15 billion in 2027, down from the $18 to $19 billion it expects to lose this year. The division should start trending toward profitability next year, as Meta's AI systems make it more useful, Zuckerberg said.

"I continue to believe that the path to delivering holographic experience, of bringing together the physical and digital worlds and everyday glasses, will come through VR first," Zuckerberg said.

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• A New Mexico judge ordered Meta to pay $25 billion over how it handled its users' data.
• It could be the largest penalty against Meta in history.
• Meta recently agreed to an $18 billion settlement over the impact of its tech on kids.

A judge in New Mexico ordered Meta to pay $25 billion for misleading users about how it handled their data and for failing to prevent misinformation on Facebook.

The ruling could be the largest penalty in Meta's history. Last month, Meta settled a child-safety lawsuit brought by a group of US states for $18 billion.

The New Mexico case focused on Meta's handling of user records that Cambridge Analytica used for campaign purposes during the 2016 election. New Mexico alleged that Facebook misrepresented the extent of users' control over their data on the app.

"Facebook's wrongdoing—over the course of years and systematically broadcast to the public—goes to the heart of Facebook's core business practices," Judge Francis J. Mathew wrote in the ruling. "It relates to the way in which Facebook induces people onto the platform and ultimately keeps them there."

In a statement, Meta's chief legal officer, C.J. Mahoney, said the penalty "makes it all but impossible to do business in the state of New Mexico."

"At its core, this lawsuit seeks to impose a tax on speech to enforce new rules for what people can say online," Mahoney said. "We are confident we will prevail on appeal."

A jury ruled against Meta last month, finding the company committed nearly 50 million violations of a New Mexico law prohibiting deceptive trade practices. Each violation carries a penalty of up to $5,000.

Some Meta executives, including CEO Mark Zuckerberg, were deposed in the case. New Mexico first sued the company in 2021, and the case went to trial last month.

In internal Meta communications presented at the trial, Zuckerberg appeared to obfuscate methods for users to hide their data.

"Give them a chance to change their privacy settings but obviously don't encourage it," Zuckerberg wrote in one internal message.

Meta's next move remains unclear. The company didn't immediately respond to a request for comment on Wednesday.

This is a breaking news story. It will be updated.