🔍 The reality of Reality Labs

Last quarter, Meta’s revenue from its Reality Labs segment, which includes its AI smart glasses, was higher than analysts predicted and its losses were lower. Those losses relative to revenue were still massive — nearly 10x what it was bringing in — with the company posting an operating loss of $4.4 billion on revenue of $470 million.

Meta has a couple of things that it’s great at and plenty of other things that it’s merely good at. Gadgets, at least so far, ain’t one of them. So, why hasn’t the company cut bait and moved on? 

Since the company started reporting those losses in late 2020, it’s totaled more than $73 billion.

• For Meta, the expense is worth it, as CEO Mark Zuckerberg believes the segment plays a key role in the company’s future. To put it simply, Meta doesn’t want to miss its iPhone moment again.

• “Certainly, the investment here is not just to build just the device. It’s also to build these services on top,” Zuckerberg replied to a question during Meta’s earnings call last week. “Right now, a lot of people get the devices for a range of things that don’t even include the AI even though they like the AI. But I think over time, the AI is going to become the main thing that people are using them for and I think that that’s going to end up having a big business opportunity by itself.”

In other words, Meta isn’t just betting on selling hardware. It’s betting that its AI services built on top of those devices will generate a new stream of revenue — much like Apple’s ecosystem of services layered on the iPhone.

The Takeaway

Here, Meta — which (as Facebook) once tried and failed to build its own smartphone — is hoping history will rhyme rather than repeat. The difference this time is that Meta wants to own both the devices and the software that runs on them.

Like Apple, which has turned its Services segment into a reliable profit engine even as hardware sales have wobbled, Meta wants to ride that same train: hardware as a gateway, software as the payoff.

Of all the many ways to measure investor sentiment — surveys, futures positioning, and more — one of our favorites might be through the answer to this question: how much are traders willing to pay for options that offer upside in stocks compared to those that protect against downside?

• Cboe’s head of derivatives market intelligence, Mandy Xu, noted that about three weeks ago, skew in the S&P 500 spiked amid renewed market jitters over the fraying of America’s trade relationship with China. 

• Skew, in this case, tracks the ratio between the implied volatility of puts versus calls, a proxy for the relative demand for bearish versus bullish options. Now that’s completely flipped on its head, for the index in general and for its largest components in particular.

• “The number of stocks in the S&P top 100 trading with inverted call skew (a sign of extremely bullish sentiment where the OTM call trades at a higher volatility than the ATM call) has surged to a high of ~20% (vs. historical average of just 3%),” she wrote.

So, what does that mean for the bull market?

The Takeaway

Zooming in on a similar measure, Goldman Sachs analyst Cullen Morgan showed that sentiment is particularly ebullient for the so-called Magnificent 7.  

“Coming into earnings this week, put-call skew in the Mag7 complex inverted for the first time since December of last year (i.e. implied volatility of calls traded over puts),” he wrote on Friday. “This phenomenon has only happened a handful of times. The move implies investors are overwhelmingly positioned for continued upside. Historically, such low skew readings have tended to coincide with short-term consolidation or reversals as optimism peaks.”

Texas wants a piece of Wall Street

The Texas Stock Exchange (TXSE) — a Dallas-based challenger pitching itself as a “pro-business” alternative to Wall Street — announced an investment from JPMorgan last week, bringing its total funding above $250 million ahead of its planned 2026 launch. More than 70 investors have joined so far, and TXSE’s debut marks the first SEC-approved exchange in decades that will eventually be able to both list as well as trade public companies’ shares.
Duopoly challenge

• 📊 Elections: Today there are gubernatorial elections in Virginia and New Jersey that traders have eyes on. Former Rep. Abigail Spanberger (D) is seen as a strong favorite, at 95%, to win in Virginia, while Rep. Mikie Sherrill (D) is priced at an 85% chance of victory in the Garden State.

• 🚗 Tesla: Polymarket users are highly convinced that Tesla investors will approve CEO Elon Musk’s $1 trillion pay package later this week, with the market-implied likelihood on the event contract at one point stretching above 97% on Monday, though it’s since come down to about 94%.

• 🗽 NYC: New Yorkers also head to the polls today and will select a mayor; Zohran Mamdani is strongly favored to win it, according to prediction markets. Traders are pricing in a 58% chance of a margin of victory of 15 points or more for the assemblyman.

*Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.