Morgan Stanley: OpenAI Shuts Down Sora — Positive Read-Across for Ad Agencies
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OpenAI's decision to shut down Sora, its text-to-image and video generation tool launched in December 2024, stems from resource reallocation toward higher strategic priorities, alongside the cancellation of a $1 billion licensing agreement with Disney. Morgan Stanley emphasizes that this closure highlights persistent difficulties in AI monetization, copyright management, and high compute costs.
Market fears regarding AI disrupting advertising agencies have heavily suppressed industry valuations, which currently trade at approximately a 35% discount to their five-year average price-to-earnings multiples. The broader market broadly views advertising agencies as AI losers, driven by concerns over generative AI disrupting content creation and large digital platforms launching automated advertising products.
Morgan Stanley argues these AI disruption fears are overblown. The Sora closure signals that brands face greater-than-expected difficulties internalizing creative functions and relying on single AI vendors. Furthermore, advertising agencies have already developed proprietary video generation tools, ensuring the Sora shutdown causes zero operational disruption. Other similar tools like Google's Nano Banana and ByteDance's Seedance remain available.
Morgan Stanley maintains an In-Line view on European advertising agencies, identifying Publicis (PUBP.PA) as the best-positioned company under its coverage, reiterating an Overweight rating. The valuation relies on a 10-year discounted cash flow model with a weighted average cost of capital of approximately 9% and a 1.5% terminal growth rate.