This year, the advertising industry has faced severe setbacks in capital markets. Shares of UK advertising giant WPP have plunged 57% year-to-date, with competitors Publicis and Omnicom also suffering significant declines. The primary market concern is that the widespread adoption of AI tools will enable brands to bypass agencies and handle ad creation and placement independently.

However, some analysts are presenting a counterargument. They contend that as media platforms grow increasingly fragmented and complex, major brands will rely more than ever on agencies' specialized navigation skills. Morningstar analyst Mark Giarelli succinctly summarized: "The industry is being disrupted, but it's not being disintermediated—that's the key point."

This shift in perspective reflects a market reassessment of advertising agencies' core value. Despite battered industry valuations, analyst recommendation ratings for Publicis and Omnicom are nearing multi-year highs. This suggests that beyond panic, some investors are beginning to recognize AI's dual impact—not just threats but also opportunities.

AI Shockwaves: Tech Giants Enter and Client Losses Yet for ad agencies, AI's threats remain real and immediate. This year, AI models capable of generating images and videos from text prompts—such as Alphabet's Nano Banana and OpenAI's Sora 2—have gained momentum. Coca-Cola aired its second consecutive AI-produced Christmas ad, marking AI's transition from concept to practice in creative generation.

Greater pressure comes from tech giants. Companies like Alphabet and Meta are rolling out tools to help brands design ad campaigns without third-party consultants. The core fear is that businesses may use these automated tools to build in-house marketing teams, slashing external agency budgets. Cybersecurity firm Palo Alto Networks exemplified this trend in September by announcing a fully in-house developed ad campaign.

New Value in Complexity: Why Agencies Remain Essential Despite these challenges, bullish analysts argue that AI-driven complexity amplifies agencies' value. Bloomberg Intelligence analyst Matthew Bloxham notes that AI will enable "near real-time" personalized digital content for each consumer, making the ad ecosystem unprecedentedly complex.

"Agencies will play a strategic role," Bloxham stated. "The greater the complexity, the more you need valuable advice to navigate it—whether for overall marketing strategy or media planning."

Morningstar's Giarelli added that tools from Alphabet or Meta can't help brands allocate ad budgets effectively across channels—precisely where agencies excel. Their core value lies in preventing redundant spending across platforms like Instagram Reels and Google Search, leveraging decades of consumer behavior data since the 1980s direct-mail era.

"Ad agencies excel at understanding consumer traits—they know where we are, what we think, and tailor messages accordingly," Giarelli explained.

Not all firms will weather this shift smoothly. WPP has twice cut guidance this year, lost high-profile clients, and risks removal from the FTSE 100 for the first time in 27 years. Additionally, any AI-driven market rebound may pose sector risks, as these stocks often fall into brokerages' "tech-disrupted" thematic baskets.