UBS Wealth has downgraded the Communication Services sector today it follows a downgrade to the Information Technology sector by the money manager last week The wealth manager is concerned a bout the scale of AI and data centre related capex n the sectors which it reminds customers could consume most of the sector free cash flow leaving little room for dividends , share buybacks or mistakes :

Analysts at the Swiss bank say that:

“The aggressive pace of spending reflects the fact that the AI model developers operate in a very competitive space. Frontier US AI companies OpenAI, Anthropic, Alphabet, Meta, and xAI, plus many non-US companies including very capable Chinese competitors, are all racing
to constantly improve their models and win market share. This is a crowded field and at this early stage of development, it is not clear who the leaders will be when the dust settles.”

The chart below drawn from the downgrade highlights the issue.