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

Communication received a curtain call in 2025 after becoming the best-performing stock market sector in 2024. To date, Communication has been the top performer of 11 stock market sectors.

Red hot stock nvidia, Broadcomand Palantir Technologies Everything is in the technology sector. However, communication has several advantages that help sectors continue to outperform key indexes, such as: S&P 500.

Vanguard Communication Service Exchange Transaction Fund (ETF) (vox) -1.84%)) It's a simple and low-cost way to invest in the sector. At an expense ratio of just 0.09%, or 90 cents, for every $1,000 invested, the fund is a cheap way to reflect the performance of the telecom sector.

This is what drives the sector to new heights and why Vanguard Communication Services ETFs are worth buying now.

Two-headed monster

It contains almost half of the communications department. Meta Platform (Meta) -1.62%)) and alphabet (Goog -2.71%)) (googl -2.65%)). It is common for a few companies to get higher, but the other sectors are less concentrated in two companies than communications.

Data Source: Vanguard Group.

The Vanguard Communication Services ETF has 117 holdings, but looking at the weights of Top Holdings, it has not diversified. Additionally, 11.8% of funds are found in the media giants. Netflix, Walt Disneyand Comcast. 10.4% of funds are from telecommunications companies AT&T, Verizon Communicationsand T-Mobile.

Adding all that, the fund essentially has a big bet on a few companies.

Social Media Effects

The vast size of metaplatforms and alphabets shows how valuable social media is compared to traditional telecom companies. Stock valuation aside, Meta and Alphabet have undoubtedly two of the best business models on the planet.

Google services, including YouTube ads, Google Search, Google Network, Google subscriptions, platforms and devices, won $30.493 billion in revenue in 2024 and $1212.7 billion in operating profit with an operating profit of 39.8% .

This is not even considered by Google Cloud, which is Alphabet's fastest-growing revenue. However, this is because the segment currently has a low margin as Alphabet is pouring its investment dollars into building the capacity to keep up with Amazon Web Services. Microsoft azure.

In comparison, the metaplatform app family (such as Instagram, Facebook, WhatsApp) won $164.5 billion in revenue and $87.1 billion in operating profit in 2024.

Alphabet and Meta have very high margins due to the lighter capital nature of their advertising business models. Netflix, Disney, and Comcast spend billions of dollars in producing content each year. Telecommunications companies must invest and maintain physical infrastructure and customer service programs.

The alphabet and meta do not have high operating costs. This allows you to convert more sales into profits. The main costs are labor and maintaining the platform. YouTube and Instagram content creators are basically working for them. It's a completely different business model from trying to create content in the hopes that your audience will receive it well.

The high margin allows the two companies to support large R&D programs, buy back shares and pay dividends (as of last year). In 2025, Meta will invest in $65 billion in capital expenditure (CAPEX) (mainly artificial intelligence (AI)) to drive engagement across the platform, allowing advertisers to run more accurate campaigns. Its (very unprofitable) reality lab division invests in virtual and augmented reality software and hardware. But again, the advertising business is so strong that Meta can afford these investments.

Alphabet incorporates AI capabilities into Google search to scale cloud infrastructure. It forecasts an astounding $75 billion for CAPEX in 2025. Despite countless benefits, Alphabet has a revenue (P/E) ratio from just 20.4 compared to the meta platform's 28.4. However, Meta's advertising business is growing fast and is undoubtedly better than alphabet ads, so premium ratings make sense.

Still, both strains have lower forward P/es than many other megacap technology names. And it takes into account a huge profit of 245% of the meta over the past three years.

Google PE ratio (forward) Data based on data YCHARTS.

Two strong industry leaders give room for the communications sector to operate

Investing in the telecom sector is a big bet on the alphabet and meta platforms. So, the majority of this discussion is centered around these two stocks. Despite the outperformance of the sector in 2024, so far in 2025, both stocks have a reasonable valuation and strong growth prospects, suggesting that both are still worth buying I'm doing it.

As long as both stocks continue to make strong profits, the Vanguard Communication Services ETF can continue to outperform the S&P 500. If you're interested in Alphabet and Meta and want to diversify beyond these two stocks, ETFs are a good bet. The yield of ETF is 1% and has a 23 p/e ratio. Like the Vanguard Information Technology ETF, it is much cheaper than other growth-centric ETFs with 38.5 P/E and only 0.6% yield.

However, if you are looking for a variety of megacap growth stocks without the limitations associated with investing in stocks in a particular sector, it may be worth exploring it. Vanguard Growth ETF or Vanguard Mega Cap Growth ETF.