Meta Platforms Inc.'s Reality Labs division reported a $4 billion loss in Q1 2026, underscoring financial challenges in its VR/AR initiatives. This comes as Meta shifts its AI strategy from open-source to a closed-source model with the upcoming "Avocado" release, amid intensified US-China AI competition. The market reacted negatively, with Meta's stock priced at a 0.1% likelihood of reaching $740 this week, down from 2%. The loss highlights increased financial pressure on Meta's technological leadership, as Chinese labs advance open AI models with lower costs. Despite setbacks, Meta plans to continue significant investments in AI infrastructure, reflecting broader industry trends. Investors are closely watching the "Avocado" release and US-China tech dynamics for future impacts on Meta's performance.