WPP PLC (LSE:WPP) was the biggest faller on the FTSE 100 on Wednesday after Barclays downgraded it and other advertising agency rivals due to its prediction that artificial intelligence will "profoundly and irrevocably" disrupt the industry.
After attending dozens of meetings at the Cannes Lions ad festival last week, the bank acknowledged that while its media team had been an "agency bull" over almost three decades, "we came away from all these meetings more bearish than before".
Most, if not all, conversations at these agency meetings centred around AI, more specifically 'agentic AI' or AI agents, noting tongue-in-cheek that "generative AI is so last year".
Agentic AIs are relatively autonomous systems that can carry out complex planning and execution of tasks withouth needing constant prompts from human workers; with various presentations from agencies and challengers suggesting this concept is already starting to be used.
"The challengers predict that agents will replace agencies. The agencies predict that agentic workflows are a game changer for them and will play into their strengths (those with the most data and biggest networks stand to benefit the most)," the analysts added, also noting that AI agents could "very plausibly mean a significant headcount reduction" to cut costs for agencies' media and creative businesses.
While the Barclays team still believe that agencies "will adapt, survive and ultimately thrive... it will take time, money and good execution".
The lacklustre growth of the past few years is therefore forecast to persist for longer.
WPP was downgraded to the lowest rating, 'underweight', from the previous neutral 'equal weight' stance, with the bank's share price target cut to 550p from 700p.
US rivals Interpublic Group (NYSE:IPG) and Omnicom Group Inc (NYSE:OMC) were also both cut to 'equal weight' from the top rating of 'overweight'. Paris-based pair Publicis and Havas, meanwhile, were both kept at 'overweight'.
On WPP, where CEO Mark Read announced his retirement two weeks ago, the analysts said the shares are "inexpensive" after underperforming 44% versus the Euro Stoxx 600 so far this year.
But Barclays expects this underperformance to continue because of the uncertainty from Read's departure and around $1.4 billion of media billings that need to be defended – "and they are likely to lose some of that based on recent track record".
WPP has also warned first-half margins will be below last year, with a recovery expected in the second half to meet full-year guidance.
"That said, we do not believe, unlike others, that WPP is fundamentally impaired and we do believe that the new CEO can turn this ship around, but it is likely to come with higher investments and lower margins initially."