AI Spending Drags Communication Services Despite Broad Advances

The Communication Services sector split on Thursday, October 22, as gains across the broader roster were overshadowed by steep declines in its largest holdings. Within the group, 61.1% of S&P 500 members finished higher, leaving the equal-weighted sector at +0.3%. The cap-weighted sector, by contrast, ended -3.1%, while the exchange-traded fund representing the sector, Communication Services Select Sector SPDR Fund (XLC), finished -1.4% at $107.43. That gap traces directly to the fund's concentration in a few mega-cap names, while across the fund's graded holdings, companies graded A or B account for 22.5% of the weight. The day's decline took hold after Meta fell roughly 7% following a profit miss and an announcement that it would authorize a new class of stock to finance infrastructure.

Investor scrutiny centered on the mounting cost of artificial intelligence expansion. Meta projected annual capital spending between $135 billion and $145 billion to support its AI infrastructure, as investors weighed AI-agent growth against rising capital costs and the new share class. That spending outlook pressured Alphabet and chilled sentiment across the broader technology and communication complex. Across the wider market, 5 of the 11 sectors rose, but the outsized weight of digital platforms pulled the communication group toward the bottom of the session.

Beyond the mega-caps, individual constituents also diverged. Charter Communications Inc closed +4.2% and Verizon Communications Inc finished +3.7%, while EchoStar Corporation closed -7.4%. Those advances supported the sector's positive breadth, though our sources show no reported driver for their moves on the day.

For investors tracking the sector through the fund, today's divergence reflects the portfolio's top-heavy design. EasyAlpha grades 86.6% of the portfolio against industry peers. Companies graded A or B have stronger fundamentals, and historically they have carried a lower risk of large drawdowns than companies graded D or E. In this fund, 22.5% of the graded weight sits in those top two tiers. Separate from quality grades, the fund's market-cap weighting means overall returns remain dominated by its largest holdings. That drag has accumulated over time, leaving XLC at -7.1% over the past twelve months.