Market Watchers Bullish on Advertising Sector Rebound After Turbulent 2025

Analysts are placing their bets on a comeback story for advertising firms, predicting a sharp recovery following a brutal 2025.

The Rough Patch

Last year delivered a one-two punch to the industry. Budgets tightened, traditional models cracked, and digital ad spend faced unprecedented volatility. The sector took a beating, with valuations reflecting the widespread pessimism.

Catalysts for a Turnaround

Market watchers point to several converging factors. Evolving consumer engagement is forcing innovation, while new, more measurable platforms are gaining traction. The consensus? Adaptation isn't just happening—it's accelerating, setting the stage for a powerful rebound.

The Bottom Line

While some remain skeptical, calling it just another cycle of Wall Street's favorite game—buying the rumor of a recovery and selling the eventual news—the momentum shift is palpable. The ad world isn't just bouncing back; it's being rebuilt from the ground up.

New AI tools raise concerns over in-house marketing

New AI tools have gained significant ground this year. Google’s Nano Banana and OpenAI’s Sora 2 can create images and videos just from written instructions. Coca-Cola Co. ran a Christmas commercial made by AI for the second year in a row.

Tech giants are also putting pressure on the industry. Alphabet Inc. and Meta Platforms Inc. have introduced their own tools that let brands design ad campaigns without hiring outside consultants.

The biggest worry is that companies might use these automated systems to build their own marketing departments. In September, cybersecurity company Palo Alto Networks Inc. said it created an entire advertising campaign by itself without help from any outside agencies.

But Google and Meta cannot help brands figure out how to spread their advertising budgets across different platforms, according to Giarelli. This is where agencies can prove their worth, helping clients avoid spending money twice on similar audiences between Instagram Reels and Google Search, for example.

This ability comes from information about consumer behavior that agencies have collected since the 1980s, when direct mail campaigns were the main marketing tool. “Ad agencies are quite good at understanding a variety of characteristics. They know where we are, what we’re thinking to some degree, and they’re able to tailor a marketing message based on that,” Giarelli said.

The advertising world is getting more complicated at the same time. AI will likely allow companies to create personalized digital content “almost on the fly” for each individual consumer, according to Bloomberg Intelligence analyst Matthew Bloxham.

“There is going to be a strategic role for agencies,” Bloxham said. “With more complexity, you want more valued advice to help you navigate through, whether that’s the overall marketing strategy or media strategy.”

Lower costs could spark advertising arms race

Another reason to be optimistic about agencies comes from JPMorgan Chase & Co. analyst Daniel Kerven. He argues that lower costs for making ads should lead to more advertising and bigger spending from major brands. When AI makes all ads better in general, top advertisers might compete in an “arms race” to create “unforgettable experiences,” he said.

The AI debate has hurt how investors value these companies. WPP’s forward price-to-earnings multiple has dropped to an all-time low. Omnicom’s valuation sits NEAR its lowest point since 2020, while Publicis is closer to its 10-year average.

If AI stocks rally in the broader market, it could hurt advertising agencies even more, since brokers often group them with companies expected to struggle against new technology.

Some agencies face bigger challenges than others. WPP cut its financial guidance twice this year after losing several prominent clients to competitors. The company is about to leave the FTSE 100 index for the first time in 27 years.

But mergers and acquisitions could help struggling players. Japan’s Dentsu Group Inc. is reviewing its international operations. The Times reported in November that WPP has received interest from Havas NV, though Havas later denied this.

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