Meet the Newest Growth Stock Joining the S&P 500. It’s Up 80% in 3 Months, and It’s Still a Buy Right Now, According to Wall Street.

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The S&P 500 is a significant index in the worldwide financial sector, as it follows the performances of 500 top U.S. corporations. However, qualification for inclusion isn’t solely based on large market capitalization; companies must also demonstrate profitability in the latest quarter and over the past year, while ensuring their stocks have sufficient trading volume to maintain liquidity.

The S&P Global committee periodically revises their index every three months, but exceptional circumstances may require an immediate revision – like when a listed company is acquired or becomes privately owned. In such cases, another publicly traded stock must be added to compensate for the loss.

Just a short while ago, following the completion of Synopsys’ acquisition of Ansys on July 17, Ansys has been replaced by The Trade Desk (TTD). Despite climbing an impressive 80% from its lows in April, analysts on Wall Street believe that there is still potential for TTD’s stock to keep rising.

A wild ride into the S&P 500

The road to The Trade Desk being included in the S&P 500 hasn’t been flawless, as it has encountered a few stumbles following its 2016 IPO. One of its most significant missteps occurred recently when the company fell short of its own projected revenue for the fourth quarter – this was their first miss since becoming a public company.

The shortfall in earnings stemmed from difficulties encountered during the shift of customers to our novel AI-driven digital advertising platform known as Kokai. Designed for marketers, this innovative platform enhances bidding optimization and targeted advertising to maximize the effectiveness of marketing budgets. Moreover, Kokai offers advanced measurement tools particularly relevant in today’s privacy-focused environment due to App Tracking Transparency, which restricts apps from tracking user behavior beyond their own domains.

The progress of transitioning customers advanced gradually, prompting management to implement significant staff alterations in an attempt to speed up the change during the final quarter. This decision resulted in a revenue shortfall in the fourth quarter, which caused the stock price to plummet from its peak at the end of 2024. At one stage, the stock had dropped by 67%.

The initial quarter saw management’s decision bearing fruit. They are now ahead of schedule in their aim to migrate their entire clientele to Kokai by year-end, with roughly two-thirds of clients already utilizing the platform. What stands out most, however, is that the transition of their major customers ensures a significant portion of their spending is being processed via Kokai.

The market boosted The Trade Desk’s shares due to impressive earnings. Furthermore, the announcement that it will be part of the S&P 500 gave the stock a further lift, yet its price is approximately 40% lower than its peak. Nevertheless, numerous analysts believe there’s potential for The Trade Desk to rebound, and the outlook for the ad platform is optimistic in the long term.

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Where does Wall Street see the stock going?

Over the past few weeks, The Trade Desk’s share price has rebounded, and financial analysts on Wall Street continue to express optimism about the company. Just three months ago, a total of 30 out of 39 analysts covering the stock suggested it as a good investment or its equivalent. Today, that number remains at 30 buy ratings.

Starting from early July, there have been numerous upward adjustments to the stock’s price target. The highest of these, at $105, was set by analysts from UBS on July 16, following news that the company would be included in the S&P 500. This suggests a potential increase of approximately 29% compared to its current price.

A more optimistic view on The Trade Desk’s future is justified. Unlike most digital advertising platforms, it operates independently of the major market titans such as Google (owned by Alphabet), Meta Platforms, and Amazon.

Rather than concentrating on its unique features, The Trade Desk emphasizes providing ad spots across various online platforms, including websites, video streaming services, podcasts, and other digital media. This approach has been instrumental in its expansion as an increasing number of companies launch their own ad-supported streaming services, and new podcasts continuously emerge daily. Over time, this flexibility has helped The Trade Desk increase its stake in the digital advertising sector.

Despite The Trade Desk’s significant growth, it represents only a minuscule fraction of the overall digital advertising market. Last year, customers allocated approximately $12 billion on its platform. Analysts predict that the entire ad industry accumulates roughly $1 trillion in ad spending annually. Thus, there are vast sectors within the market that The Trade Desk can potentially penetrate in the long term.

Management aims to seize a larger share of the market by offering new stock at reduced prices for marketers. Their OpenPath service enables publishers to collaborate directly with The Trade Desk, eliminating intermediaries and boosting the financial benefits for both publishers and advertisers. This strategy positions them to match prices with industry giants like Google, Meta, and Amazon, who offer access to their own inventory. Additionally, The Trade Desk is considering creating its own inventory using its Ventura streaming TV system.

As an onlooker, I find myself optimistic about Kokai’s successful shift and ongoing advancements in enhancing ad effectiveness for marketers. This progress undeniably fosters growth in advertising expenditure via The Trade Desk. Presently, the stock is trading at an enterprise value-to-forward EBITDA ratio of 34. However, given its robust revenue surge and expanding margins, this price seems a reasonable assessment for the stock at present. Notably, the majority of analysts tracking the stock predict it will continue to climb higher in the future.

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2025-07-22 17:32