Communications Sector Shining Bright: Why It Could Continue Its Winning Streak in 2025
After dazzling investors as the best-performing stock market sector in 2024, the communications sector is receiving yet another standing ovation as we move into 2025. As of year-to-date, communications is once again leading the pack among the 11 stock market sectors, defying the expectations set by other high-flyers like Nvidia, Broadcom, and Palantir Technologies, which predominantly represent the technology sector.
The Drivers Behind Communications’ Success
The communications sector has proven it possesses unique qualities that could sustain its performance, distinguishing it from the heavyweight technology companies. A notable entry point for investors looking to tap into this momentum is the Vanguard Communication Services ETF (NYSEMKT: VOX), which offers a straightforward and low-cost strategy to invest—boasting a mere 0.09% expense ratio, or just 90 cents for every $1,000 invested. This cost-effectiveness makes it an attractive mirror for tracking the sector’s ongoing success.
But what exactly is propelling this sector to new heights?
Key Contributors: Meta and Alphabet
Almost half of the communications sector’s weight resides in just two companies: Meta Platforms (NASDAQ: META) and Alphabet (NASDAQ: GOOG & GOOGL). This remarkable concentration underscores the sector’s vulnerability but also its potential for significant rewards. Meta and Alphabet not only dominate the advertising space but continue to enhance their business models, challenging traditional communications companies.
A Closer Look at the Vanguard Communications ETF
| Vanguard Sector ETF | Top Two Holdings | Allocation in Top Two Holdings |
|---|---|---|
| Vanguard Communications ETF | Meta Platforms and Alphabet | 48.5% |
| Vanguard Consumer Discretionary ETF | Amazon and Tesla | 40.8% |
| Vanguard Information Technology ETF | Apple and Nvidia | 30.7% |
Data source: Vanguard Group
While the ETF consists of 117 holdings, it tends to lean heavily on its top investments. Approximately 11.8% is allocated to entertainment giants like Netflix, Walt Disney, and Comcast, while telecom companies like AT&T, Verizon, and T-Mobile account for 10.4%. This means that investing in the ETF is fundamentally backing a small number of core companies poised for significant growth.
The Power of Business Models
Meta and Alphabet’s business models are noteworthy for their ability to generate substantial profits with relatively low operating costs. In 2024, Alphabet’s Google Services segment generated $304.93 billion in revenue with an operating margin of 39.8%, while Meta earned $164.5 billion at a staggering 53% margin. Their advertising-centric strategies allow them to reinvest profits into innovation and shareholder rewards, contrasting sharply with traditional media firms that face higher content production costs.
Looking ahead to 2025, both companies are aggressively investing in capital expenditures, focusing on artificial intelligence and cloud computing. While Meta is projected to invest $65 billion, Alphabet is forecasted to allocate a whopping $75 billion. These investments emphasize their commitment to growth and competitive positioning against established players like Amazon Web Services and Microsoft Azure.
Valuations and Future Prospects
Intriguingly, despite their impressive gains, both Meta and Alphabet offer favorable valuations compared to other mega-cap technology stocks. As of now, Alphabet carries a forward price-to-earnings (P/E) ratio of 20.4, while Meta’s stands at 28.4. These figures suggest that both firms still have room for upward movement in their stock prices, particularly as they continue to leverage innovative business strategies.
As for the Vanguard Communication Services ETF, not only does it provide exposure to these juggernauts, but it also does so with a competitive yield of 1%, and a P/E ratio of 23, making it less expensive than other growth-focused ETFs.
Broader Investment Strategies
For investors eager to diversify beyond just Meta and Alphabet but still capitalize on the growth trajectory, strategies like investing in the Vanguard Growth ETF or Vanguard Mega Cap Growth ETF represent valuable alternatives. These funds broaden exposure to leading growth stocks across multiple sectors without the concentration risk inherent in sector-focused ETFs.
The Call to Action
Are you worried that you’ve missed your chance to invest in tomorrow’s leading stocks? At Extreme Investor Network, our team of seasoned analysts regularly issues “Double Down” recommendations for companies anticipated to explode in value—often before their potential is widely recognized. This past performance speaks volumes:
- Nvidia: A $1,000 investment back in 2009 would have grown to $348,579.
- Apple: A similar $1,000 bet in 2008 is now worth a stunning $46,554.
- Netflix: Invest just $1,000 in 2004, and you’d be looking at $540,990.
Right now, we have three more “Double Down” alerts ready for you, and the clock is ticking.
Whether you’re looking to ride the waves created by high-performing stocks or seeking broad exposure without strings attached, the communications sector, driven by titans like Meta and Alphabet, continues to offer promising opportunities. Dive deeper into investing strategies and tools with Extreme Investor Network—your pathway to extraordinary returns awaits!