By Megan Graham

Barclays analysts have downgraded the stock of several major advertising holding companies, saying the industry will continue to see low growth as it makes a transition to an industry fundamentally changed by artificial intelligence.

They and other analysts, however, struck a more positive tone on the sector in the long run, arguing that agencies will adapt and AI will create new opportunities.

The Barclays analysts said that dozens of agency meetings at the ad industry's annual five-day Cannes Lions festival on the French Riviera in June had mostly centered on AI without projecting much short-term strength for the industry.

AI poses many new questions and challenges to ad executives, including what happens to their system of hourly billing when technology makes their work much faster to perform. It might also make both their craft and science so accessible that marketers feel less need to hire agencies in the first place.

Consumer health products company Opella operates an AI "factory," for example, that produces advance care planning materials for medical professionals alongside the hundreds of webpages, images and Instagram posts that it generates every day.

"We have been longstanding agency bulls...but we came away from all these meetings more bearish than before," the Barclays analysts wrote in a research note last week. "While we still believe that agencies will adapt, survive and ultimately thrive (the questionable industry joke often told goes 'we are cockroaches, not dinosaurs'), it will take time, money and good execution. We therefore see the current low growth persisting for longer than we initially thought."

Barclays downgraded the stocks of ad giants Interpublic Group and Omnicom Group, which are poised to merge this year, along with that of London-based WPP. It maintained its rating on Publicis Groupe, which it said has been a leader in recent times in organic growth and client wins.

"While we remain positive over the long term, we now do believe that a period of transition means that the current lackluster growth of [circa] 2% for the top six should continue in the short term and operating performance should be more contrasted than usual, as it often is in periods of dramatic changes," the analysts wrote.

The major ad agency holding companies have sought in recent years to show clients, not to mention investors and analysts, that they have access to the latest and greatest technologies, as well as prove that what they do can't be easily or entirely replaced by the onslaught of new AI tools.

But AI continues to encroach on agencies' traditional remits. Meta Platforms, for instance, plans to release AI tools by the end of 2026 automating the entire process of creating and placing ads on Facebook and Instagram.

Barclays was optimistic about agencies on that front, saying that Meta won't replace agencies partly because the social-media company primarily serves small businesses instead of the big-budget advertisers that are agency clients.

BofA Global Research analysts said in their own note that even though there's an investor perception that AI increases the risk marketers will take agency tasks in-house, many marketers themselves seem to be playing down that possibility.

"Agency holdcos have a deeply engrained tradition of adaptability and partnerships," they wrote, citing agreements announced at Cannes including WPP's deal to use TikTok's AI tools and new Omnicom partnerships. The ad giants "have previously demonstrated they can navigate changes and risks well," BofA Global Research said.

AI in some ways has the potential to expand the ad industry over time, Goldman Sachs analysts said last week.

AI-driven improvements in personalization and targeting could significantly improve the return that advertisers achieve on their current spending, in turn perhaps unlocking larger ad budgets as advertisers redeploy those greater returns into other ad channels, they wrote.

More businesses might be able to advertise with less of a financial burden than before, Goldman Sachs added.

"AI automating many aspects of the advertising value chain and lowering barriers to entry into certain channels or ad formats for advertisers may expand the number of businesses globally that deploy ad spend," its analysts wrote.

Write to Megan Graham at megan.graham@wsj.com

(END) Dow Jones Newswires

June 30, 2025 19:46 ET (23:46 GMT)

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