Communication Services: The Transition to Streaming Platforms Is Progressing Well at Many Legacy Media Firms

The market’s view of Meta Platforms META is tracing a similar path to Alphabet’s GOOGL a year ago: skepticism about the potential return on artificial intelligence investments is giving way to optimism as AI uses emerge. Laying a foundation, management confirmed that it is open to leasing computing capacity to others. While we don’t view this as a great long-term business—we have no-moat ratings on so-called “neocloud” companies like CoreWeave—it provides an attractive hedge if Meta is unable to utilize capacity internally given the current compute capacity shortage. The firm then released Muse, a personal AI agent that has gained rapid initial adoption, and announced plans to launch a new AI enterprise platform. We think Meta has a significant opportunity in the consumer market, but we doubt its ability to penetrate the business market.

In any case, the market is coming around to our view that Meta’s AI investments will at least prove value-neutral, allowing the wide-moat social media advertising business to shine through. The ad market remains very strong, as AI enhances both the consumer experience and targeting capabilities, pushing both ad volumes and pricing higher. Given the recent run in Meta shares, however, we think Alphabet is the more attractive of the two giants.

In the traditional media business, we believe the market has overlooked the significant progress many firms have made in shifting away from traditional cable television. Furthermore, what remains of exposure to the old cable bundle is heavily weighted toward sports content, where consumer demand remains extraordinarily high regardless of how consumers access it.

For example, ESPN now provides more than half of Disney’s television network revenue. The Super Bowl, Olympics, and World Cup generated more than 20% of Comcast’s US media revenue in the first half of 2026, with other NFL and NBA content on top of that. Sports rights are expensive and limit profitability, but they help drive the transition of other entertainment to streaming. In addition, both Disney and Comcast’s NBC hold theme parks and experiences businesses that should remain attractive for years to come.

Top Communication Services Sector Picks

Comcast CMCSA

• Fair Value Estimate: $36.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

We expect Comcast’s decision to spin off its media assets will allow it to pursue strategic options far more efficiently. The firm has struggled to retain broadband customers as competition has increased, but demand for internet connectivity isn’t going anywhere. We expect Comcast to gradually stabilize its customer base over the coming years while enjoying some pricing power. In this state of the world, consolidation makes sense, and we would not be surprised if Comcast merged with Charter in the future. The new media business holds key content franchises and sports rights that could benefit other firms. Netflix has already expressed interest in acquisitions through its failed bid for Warner Bros.

Walt Disney DIS

• Fair Value Estimate: $125.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

Disney easily combines the highest quality, strongest long-term competitive advantages, and least risk in media and entertainment, all while trading at a relatively low valuation. Its experiences business provides the most value and is most distinct from the competition. Results are sensitive to the economy and consumer health, but heightened recent investment provides a long runway of durable growth. Entertainment businesses face much more competition, particularly in streaming, but the segment now has very little remaining linear TV revenue, the part of the media industry that is in decline and pressuring peers’ results. More than most peers, we see Disney with opportunities to play offense rather than defense.

Omnicom Group OMC

• Fair Value Estimate: $115.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

Traditional ad agencies like Omnicom have been sapped by AI fears. AI-powered tools may hurt pricing power for creative and production services, but the agency’s core business now centers on omnichannel marketing planning and managing data assets, which we believe will play an increasingly important role in a complex, fragmented ad ecosystem. With the IPG merger closed, we expect Omnicom to join Publicis in outperforming other agencies thanks to its trainable data assets that can improve targeting and conversion efficiency.