Communication Services Surge as Risk Takers Return

The Communications Services sector is back in play! After a rocky start to 2025 marked by tariff fears and economic uncertainty, investors have swung their risk appetite back toward growth stocks. From AI-driven advertising giants to telecom titans, this sector is now flashing green. But before you jump in, let’s break down what’s driving this rally—and where to look for the best opportunities.

Why the Sudden Surge?

The sector’s rebound is tied to three key catalysts:

1. AI-Driven Growth:
   The “Magnificent 7”—including Alphabet (GOOGL), Meta Platforms (META), and Microsoft (MSFT)—are fueling this rally. These companies are pouring billions into AI, from generative tools like Google’s NotebookLM to Meta’s Ray-Ban smart glasses. This isn’t just about gadgets; it’s about monetization. shows ad revenue surging as AI personalizes ads, while hardware sales open new revenue streams.

2. Defensive Telecom Resilience:
   While tech stocks grab headlines, Verizon (VZ) and AT&T (T) are quietly winning. Their 5G networks and broadband dominance provide stability. Even as cable companies like Comcast (CMCSA) lose TV subscribers, their broadband and streaming (e.g., Peacock) keep cash flowing. reveals a steady climb, making them safe bets in a volatile market.

3. M&A Activity and Policy Clarity:
   The Federal Communications Commission’s greenlighting of mergers (e.g., Verizon’s $20B Frontier deal) signals confidence in infrastructure growth. Meanwhile, delayed antitrust actions against tech giants have eased fears, letting investors focus on earnings.

The Numbers Back the Narrative

• Sector Performance: Despite a -8% decline in the six months ending April 2025, the sector’s +2.9% 12-month return (vs. the S&P 500’s -0.1%) shows longer-term resilience.
• AI Spending: Meta’s AI budget jumped to $64–72B in 2025, while Microsoft’s $80B in capex highlights their belief in AI’s ROI.
• Historical May Trends: The S&P 500 has averaged +1.0% gains in May since 1980, with a 71% win rate. This month’s rebound fits the pattern.

Where to Play Now

Growth Stocks for Risk Takers:
- Meta (META): Its AI-powered ad tech and Ray-Ban smart glasses are game-changers. The stock’s +35% profit growth in Q1 2025 isn’t a typo.
- Alphabet (GOOGL): Its $80B AI investment isn’t just R&D—it’s a bet on owning the future of search and advertising.

Defensive Anchors for Stability:
- Verizon (VZ): Its 5G rollout and fiber network expansion are cash cows. A 4.2% dividend yield makes it a buy-and-hold staple.
- AT&T (T): The stock’s +8% yield and streaming growth (e.g., HBO Max) offer a cushion against tech volatility.

The Red Flags (and Why to Look Past Them)

• Regulatory Risks: Antitrust probes and privacy laws still loom. But with the administration’s focus shifting to trade deals, these threats are overblown.
• Economic Sensitivity: A slowdown could hurt ad spending. But the resilient U.S. consumer—driving 70% of the economy—gives tech stocks a buffer.

Final Take: Buy the Dip, But Stay Selective

This sector isn’t a one-way bet. The Schwab Marketperform rating reminds us to stay cautious on macro risks like inflation or trade wars. But with AI adoption at 47% in enterprises (per Gartner) and 5G penetration hitting 35% in 2025, the fundamentals are strong.

Action Plan:
- Aggressive Investors: Go long on META and GOOGL at dips below $400 and $150, respectively.
- Conservative Players: Load up on VZ and T for dividends and stability.

The Communications Services sector is no longer just about phone lines—it’s the gateway to the AI revolution. This May, risk takers are winning big.

Conclusion: With +1.0% historical May gains, $144B in AI capex, and 5G’s 35% penetration, the Communications Services sector is primed for growth. While risks linger, the blend of AI-driven innovation and telecom stability makes it a must-watch space. As Jim always says: “In a rising tide, even the laggards float—so don’t miss the wave!”