This week, shares of The Trade Desk have climbed over 7%, mainly because they’ve been selected for inclusion in the S&P 500. Starting on July 18, The Trade Desk will become an official member of this widely followed index. Notably, Ansys, previously a part of the S&P 500, was recently acquired by Synopsys, which is why it will be replaced.
Significantly, The Trade Desk has proven to be an outstanding choice for long-term investments. Over the past seven years, its stock has surged by a staggering 760%, and given its recent inclusion in the S&P 500, historical trends suggest it could see further growth in the short term.
Here’s what investors should know.
Historically, stocks tend to increase following their inclusion in the S&P 500
Approximately one-third of the S&P 500 index has been replaced over the past decade by around 175 new companies, and on average, these newly added stocks saw a growth of approximately 13.6% in the year following their inclusion. Translated differently, historical trends suggest that The Trade Desk stock may increase by about 14% over the next 12 months.
People might wonder why stocks typically rise after they are added to the S&P 500. The reason is connected to various investment products tied to this index. Funds following the S&P 500 must purchase shares of a company like The Trade Desk to align with the composition of the benchmark index. This buying activity creates an upward trend in the stock price, at least for a short period.
Being included in a U.S. stock benchmark such as the S&P 500 can enhance a company’s visibility and reputation, especially since passive investment funds are expanding. However, benefits from being added to the index, like those The Trade Desk might receive, tend to be temporary. Therefore, it’s crucial for investors to evaluate whether The Trade Desk is a wise long-term investment before buying its shares.
The Trade Desk is a recognized leader in ad tech software
Trade Desk stands as the leading independent provider in the ad tech industry, specializing in a demand-side platform (DSP). This software employs artificial intelligence (AI) to aid agencies and brands in strategizing, tracking, and enhancing campaigns across various digital mediums. Notably, Trade Desk holds a significant position in connected TV advertising, securing inventory from companies like Disney, Netflix, and Roku.
At The Trade Desk, since they don’t possess media content or advertising space (ad inventory), they don’t feel compelled to guide clients towards particular websites. This independence sets them apart from competitors such as Alphabet and Meta Platforms, who stand to benefit financially by selling their own ad spaces. Therefore, potential conflicts of interest, which are common in these types of companies, are minimized or even eliminated entirely.
The portfolio managers at The Ithaka Group recently explained that their company’s strong competitive advantage, or “moat,” comes from three key aspects:
1. Their cutting-edge technology infrastructure, which sets them apart in the industry.
2. Their well-respected brand, built on their unique focus within the ad ecosystem on the buy-side (meaning no potential conflicts of interest).
3. Their open and clear reporting system, which provides detailed information about the return on investment for every dollar spent on advertising.
It’s worth noting that Frost & Sullivan analysts have just ranked The Trade Desk as number one among Demand-Side Platforms (DSPs), due to its impressive growth and innovative advancements. The report specifically highlights the introduction of advanced AI tools during their latest update, which enable media buyers to fine-tune their ad campaigns’ efficiency using AI for budgeting, bidding, and targeting purposes.
According to Wall Street predictions, The Trade Desk’s annual adjusted earnings growth rate is expected to be around 12% up until 2026. Given its current valuation of 47 times adjusted earnings, some might consider it pricey. However, I have reasons to believe that analysts may be underestimating this. You see, the spending in ad technology sector is anticipated to increase by 14% per year until 2030. Given The Trade Desk’s track record of expanding its market share, if this trend persists, their earnings could potentially grow even faster.
Furthermore, it’s worth noting that Wall Street has often overlooked The Trade Desk in the past. In fact, over the past six quarters, the company consistently surpassed the predicted earnings estimate by an average of 12%. If this trend persists, its current valuation might appear more reasonable with the benefit of hindsight. Patient investors may find it prudent to invest a modest amount today.
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2025-07-17 19:26