Here’s why I’ve changed my mind on this plummeting FTSE 100 share!
Struggling advertising giant WPP (LSE:WPP) has seen its share price plummet an eye-watering 42% over the past year. Though crushed by tough economic conditions and its impact on client spending, I was confident that the FTSE 100 share’s terrific scale, strong relationships with blue-chip clients, and vast expertise across the advertising, marketing and communications segments would eventually see it stage a recovery.
I was also hopeful that its own heavy investment in artificial intelligence (AI) would fuel its rebound. Following fresh news over the last month or so, I’m not so certain.
Here’s why I now believe investors should strongly consider avoiding WPP’s shares.
AI warning
The threat to a multitude of creative industries from generative AI is considerable. Companies can use machines to generate their own text and images quickly and at low cost.
That doesn’t mean fears over accuracy and copyright infringement are unfounded. But the advantages are clear for businesses looking to market their products and services cheaply and quickly.
WPP’s seeking to seize this opportunity with its WPP Open marketing platform, which uses AI to simplify content creation. Its use is growing rapidly — 48,000 members of its staff were using it as of April, up from 33,000 at the end of 2024.
The Footsie firm’s enjoying notable success too, with new business wins with the likes of Amazon and Unilever put down to its new technology. No wonder then, that planned investment in WPP Open has been raised to £300m this year from £250m in 2024.
Growing threat
Describing AI as “the single most transformational development in our industry since the internet“, WPP has predicted it “will impact every element of how we work, freeing up our creative people to do better work, increasing the efficiency of our production teams to produce much greater volumes of high-quality work and empowering our media teams to develop and deploy more effective plans in a fraction of the time“.
It’s true that AI will allow its staff to focus on higher-value strategic and creative tasks. However, it also introduces a level of automation that could throw the whole advertising industry into a full-blown existential crisis.
In an interview with CNBC in June, WPP’s outgoing chief executive Mark Read predicted that AI is “going to totally revolutionise our business.” He said that the technology is “unnerving investors in every industry [and] totally disrupting our business,” pressures that are likely to rise as AI becomes increasingly intelligent.
Too risky
WPP’s shares plummeted again on Wednesday (9 July) after it slashed sales and margin forecasts for 2025. It pointed to “a challenging economic backdrop“, though it’s probable sales are also slipping as companies adopt AI to bring their advertising and marketing activities in-house.
Like-for-like revenues (excluding pass-through costs) were down 4.2-4.5% in the first half. The business now expects these to fall 3-5% over the full year. This is down from a prior forecast of unchanged revenues to a 2% decline.
WPP’s challenges were already significant given the tough macroeconomic landscape and ongoing geopolitical uncertainty. This week’s financial update reveals the extent of these pressures, along with the mounting threat of AI to its long-term longevity.
Despite its low price-to-earnings (P/E) ratio of 5.4 times, I think investors should consider avoiding this high-risk share right now.
The post Here’s why I’ve changed my mind on this plummeting FTSE 100 share! appeared first on The Motley Fool UK.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
