The epic run-up may come as a surprise, since red-hot stocks like Nvidia, Broadcom, and Palantir Technologies are all in the technology sector. But communications has some advantages that could help the sector continue to outperform major indexes like the S&P 500.
The Vanguard Communication Services exchange-traded fund (ETF) (NYSEMKT: VOX) is a simple, low-cost way to invest in the sector. With just a 0.09% expense ratio, or 90 cents for every $1,000 invested, the fund is an inexpensive way to mirror the performance of the communications sector.
Here's what's driving the sector to new heights, and why the Vanguard Communication Services ETF could be worth buying now.
Image source: Getty Images.
A two-headed monster
Nearly half of the communications sector is in Meta Platforms(NASDAQ: META) and Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL). While it's common for a handful of companies to be highly weighted, no other sector is as concentrated in just two companies as communications.
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 Energy ETF
ExxonMobil and Chevron
34.4%
Vanguard Information Technology ETF
Apple and Nvidia
30.7%
Vanguard Consumer Staples ETF
Costco Wholesale and Walmart
27.2%
Vanguard Materials ETF
Linde and Sherwin-Williams
21.9%
Vanguard Health Care ETF
Eli Lilly and UnitedHealth Group
18.6%
Vanguard Utilities ETF
NextEra Energy and Constellation Energy
18.4%
Vanguard Financials ETF
JPMorgan Chase and Berkshire Hathaway
16.5%
Vanguard Real Estate ETF
Prologis and American Tower
11.6%
Vanguard Industrials ETF
GE Aerospace and Caterpillar
7.2%
Data source: Vanguard Group.
Although the Vanguard Communication Services ETF has 117 holdings, it's not that diversified when looking at the weights of the top holdings. What's more, 11.8% of the fund is in media giants Netflix, Walt Disney, and Comcast. 10.4% of the fund is in telecom companies AT&T, Verizon Communications, and T-Mobile.
Add it all up, and the fund is essentially betting big on a small number of companies.
The social media effect
The sheer size of Meta Platforms and Alphabet showcases just how valuable social media has become relative to traditional communications companies. Stock valuations aside, Meta and Alphabet arguably have two of the best business models on the planet.
Google Services, which includes YouTube ads, Google Search, Google Network, Google subscriptions, platforms, and devices, earned $304.93 billion in 2024 revenue and $121.27 billion in operating income for an operating margin of 39.8%.
This doesn't even factor in Google Cloud, which is Alphabet's fastest-growing segment by revenue. However, the segment is currently low-margin because Alphabet is pouring investment dollars into building capacity to keep up with Amazon Web Services and Microsoft Azure.
In comparison, Meta Platforms' family of apps (Instagram, Facebook, WhatsApp, etc.) earned $164.5 billion in 2024 revenue and $87.1 billion in operating income -- for an operating margin of 53%.
Alphabet and Meta have such high margins because of the capital-light nature of their advertising business models. Netflix, Disney, and Comcast spend billions every year producing content. Telecom companies must invest in and maintain physical infrastructure and customer service programs.
Alphabet and Meta don't have high operating costs, which allows them to convert more sales into profit. The main expenses are labor and maintaining their platforms. Content creators on YouTube and Instagram essentially do the work for them. It is a completely different business model than trying to produce content in the hope audiences receive it well.
High margins allow both companies to support massive research and development programs, repurchase stock, and (as of last year) pay dividends. In 2025, Meta is investing $65 billion in capital expenditures (capex) -- mainly on artificial intelligence (AI) -- to boost engagement across its platforms and allow advertisers to run more precise campaigns. Its (highly unprofitable) Reality Labs division invests in virtual and augmented reality software and hardware. But, again, Meta can afford these investments because the ad business is so strong.
Alphabet has embedded AI functionality into Google Search and is scaling cloud infrastructure. It is forecasting a staggering $75 billion in 2025 capex. Despite myriad advantages, Alphabet sports a forward price-to-earnings (P/E) ratio of just 20.4, compared to 28.4 for Meta Platforms. However, Meta's advertising business is growing faster and is arguably better than Alphabet's, so the premium valuation makes sense.
Still, both stocks have lower forward P/Es than many other mega-cap tech names. And that's factoring in Meta's massive 245% gain in the last three years.
Two strong industry leaders that give the communications sector room to run
Investing in the communications sector is a big bet on Alphabet and Meta Platforms, which is why the bulk of this discussion centered around those two stocks. Despite the outperformance of the sector in 2024, and so far in 2025, both stocks have reasonable valuations and strong growth prospects, suggesting they could still both be worth buying now.
As long as both stocks keep putting up strong gains, the Vanguard Communication Services ETF can continue outperforming the S&P 500. The ETF is a good bet if you're interested in Alphabet and Meta and want some diversification beyond those two stocks. The ETF has a 1% yield and a 23 P/E ratio. That's far less expensive than other growth-focused ETFs, like the Vanguard Information Technology ETF, which has a 38.5 P/E and just a 0.6% yield.
However, if you're looking for a variety of mega-cap growth stocks without the restrictions that come with investing in stocks in a given sector, it may be worth taking a closer look at the Vanguard Growth ETF or the Vanguard Mega Cap Growth ETF.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of Motley Fool Money. Daniel Foelber has positions in Caterpillar and Walt Disney and has the following options: short March 2025 $115 calls on Walt Disney. The Motley Fool has positions in and recommends Alphabet, Amazon, American Tower, Apple, Berkshire Hathaway, Chevron, Costco Wholesale, JPMorgan Chase, Linde, Meta Platforms, Microsoft, Netflix, NextEra Energy, Nvidia, Oracle, Palantir Technologies, Prologis, Salesforce, Tesla, Vanguard Index Funds-Vanguard Growth ETF, Vanguard Real Estate ETF, Walmart, and Walt Disney. The Motley Fool recommends Broadcom, Comcast, Constellation Energy, GE Aerospace, Sherwin-Williams, T-Mobile US, UnitedHealth Group, and Verizon Communications and recommends the following options: long January 2026 $180 calls on American Tower, long January 2026 $395 calls on Microsoft, long January 2026 $90 calls on Prologis, short January 2026 $185 calls on American Tower, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
