Meet the Low-Cost Vanguard ETF That Is Crushing the S&P 500 (Again) in 2025

After being the best-performing stock market sector in 2024, communications is getting a curtain call in 2025. Year to date, communications is, yet again, the top performer of the 11 stock market sectors.

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) (VOX -1.84%) 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.

A two-headed monster

Nearly half of the communications sector is in Meta Platforms (META -1.62%) and Alphabet (GOOG -2.71%) (GOOGL -2.65%). 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.

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