The digital advertising service provider known as The Trade Desk (TTD) has become the newest member of the S&P 500 index, effective from July 18. This inclusion is likely the reason behind the significant 6% increase in the company’s share price on that day following the news that it would be joining.
It’s no shock that there’s been a surge; The Trade Desk’s inclusion in the S&P 500 underscores the company’s strong earnings and cash flow over the past year. This move has also sparked higher interest in the stock among investors who follow passive strategies and index funds, due to a concept known as the “index effect.
It’s noteworthy that The Trade Desk was chosen to enter the S&P 500, surpassing well-known companies like Robinhood Markets, AppLovin, Interactive Brokers, among others. Its position in the index will be taken by Ansys, which was recently acquired by Synopsys. With The Trade Desk’s stock price increasing over 59% within a three-month period, some investors might now question if it’s advisable to purchase The Trade Desk shares at this time.
Let’s see if it is a good idea to buy The Trade Desk following its inclusion in the S&P 500.
The Trade Desk’s valuation makes it an expensive stock to buy right now
Currently, the price-to-earnings (P/E) ratio for The Trade Desk’s stock stands at a staggering 97. This is almost three times the average earnings multiple of the tech-heavy Nasdaq-100 index. Despite this, its forward earnings multiple of 45 remains relatively high compared to some industry standards, even though it’s significantly lower than its current (trailing) multiple.
If you’re considering purchasing The Trade Desk stock currently, you should be prepared to pay a significant premium due to its high valuation. Given that the company is only projected to see a 7% increase in earnings this year, some might find it overpriced at present. However, investors focused on growth opportunities should take note of the fact that The Trade Desk operates within a burgeoning market that leverages artificial intelligence (AI) tools extensively, which could potentially lead to substantial future gains.
A huge addressable opportunity could help the stock maintain its momentum
Based on projections, the market for programmatic advertising that The Trade Desk caters to could potentially expand tenfold from 2024 to 2033, culminating in a staggering $236 billion in earnings by the end of this forecast period. Given that The Trade Desk has already achieved nearly $2.6 billion in revenue over the past year, it seems there’s significant potential for further growth throughout the next decade.
One key observation to make is that The Trade Desk is outperforming its major rivals like Meta Platforms and Alphabet in terms of growth. In the first quarter alone, the company saw a significant 25% rise in revenue year-on-year, which significantly surpassed the 16% expansion seen in Meta’s advertising sector during the same period. Contrastingly, Alphabet’s Google advertising business expanded at a much lower rate of 8% in Q1.
Indeed, The Trade Desk might be relatively smaller at present, but its consistent growth trajectory indicates that it’s steadily carving out a significant niche within the vast digital ad market worth billions. Its advanced AI tools are playing a crucial part in driving this growth, with around two-thirds of its clientele already leveraging its Kokai programmatic advertising platform.
The company emphasizes that Kokai evaluates 17 million potential ad placements per second to assist advertisers and businesses in purchasing suitable ad slots, which can be distributed across various platforms like video, audio, display, social media, smart TVs, among others. This data-based advertising approach allows The Trade Desk to fine-tune campaigns, resulting in greater returns for the ad dollars spent by their clients.
According to The Trade Desk, clients using Kokai have experienced a 42% decrease in cost per individual reach, which measures how much money is spent to reach an unique person through an advertisement. Moreover, the company reports that its current contract negotiations are at a record high. This suggests that The Trade Desk may see even faster growth in the future.
In simpler terms, experts predict that the company’s net income growth rate could increase almost threefold to around 20% in 2026 compared to this year. The Trade Desk may continue to see an upward trend in earnings growth because they anticipate advertisers using their platform will reinvest the cost savings from these campaigns back into advertising.
In the future, you might not find it surprising if The Trade Desk experiences an increase in its earnings growth, indicating that the company possesses the potential to uphold its current valuation. This is the reason why this technology stock remains appealing for growth investors, despite the substantial returns it has already generated.
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2025-07-20 11:51