WPP Crashes 60%--But a Shock AI Twist Could Flip the Ad Game

Market observers have increasingly framed 2025 as a stress test for advertising agencies as artificial intelligence reshapes how marketing content is created and distributed. Shares of WPP Plc WPP have fallen roughly 60% this year following contract losses and multiple guidance cuts, while peers Publicis Groupe SA (PUB) and Omnicom Group Inc. OMC have also declined, though to a lesser degree. The selloff has been fueled by growing adoption of generative AI tools such as Google's Nano Banana and OpenAI's Sora 2, alongside examples like Coca-Cola's AI-produced Christmas advertisement for a second consecutive year, reinforcing concerns that automation could reduce reliance on traditional agency services.

Despite those pressures, a more nuanced narrative has started to emerge. Some industry watchers argue that while advertising is being disrupted, it may not be fully disintermediated. As media channels multiply and campaigns become more fragmented, large brands could depend more on agencies to coordinate strategy across platforms. Even as Alphabet and Meta roll out tools allowing advertisers to design campaigns internally, agencies may still add value by helping clients allocate budgets across channels and avoid duplicated spending. That capability is rooted in decades of consumer behavior data, dating back to the era of direct mail, which remains difficult to replicate through automated tools alone.

Valuations suggest skepticism is already embedded. WPP now trades at a record-low forward price-to-earnings multiple, Omnicom is near its lowest valuation since 2020, and Publicis sits closer to its 10-year average. The sector also faces structural risks, as AI-driven rallies elsewhere in the market could leave agency shares grouped among perceived disruption losers. Still, there are potential offsets. Lower production costs enabled by AI could encourage more advertising spend by major brands, possibly intensifying competition around creative quality. At the same time, strategic uncertainty has revived consolidation talk, with Japan's Dentsu reviewing its overseas operations and WPP having reportedly attracted takeover interest that was later denied, keeping the industry's outlook fluid rather than settled.