One tech stock that has absolutely skyrocketed this year is The Trade Desk (TTD 1.71%). Year to date, shares of the advertising technology company are up a 66%. This absolutely obliterates the S&P 500's 12% gain during this same period. Have investors in the growth stock become overly exuberant? Or, on the contrary, is there some substance behind this soaring stock?

A close look at the stock and (more importantly) the underlying business, reveals that it may make sense for investors to keep holding the stock -- particularly those sitting on huge capital gains.

But first, some backstory.

What happened to The Trade Desk stock?

Before we dive into the company and the stock's valuation, investors should note that shares are still trading far below their all-time highs. At one point, in 2021, shares crossed $111. This means that the stock is trading more than 33% below its high.

So even though The Trade Desk stock has had a great year, it's still playing catch up. Many investors who initiated positions over the last year or two, therefore, may still be in the red. That said, long-term investors who have owned the stock for more than three years may be sitting on massive profits. The stock is up 742% over the past five years and 108% over the past three, crushing the S&P 500 in both periods.

Interestingly, volatility for The Trade Desk stock over the last three years has likely been driven more by market and industry sentiment than results. As it turns out, the company has delivered impressive revenue growth in every quarter since the second quarter of 2020. But sentiment for tech stocks during this period has been up and down. Further, sentiment for digital advertising stocks was particularly poor in 2022 as many digital advertising companies saw their growth rates come down significantly, with some major players in the space even reporting year-over-year declines. Notably, however, The Trade Desk grew full-year 2022 revenue 32% year over year; and it kicked off the first quarter of 2023 with 21% growth -- a rate that is far higher than digital advertising peers like Meta Platforms and Alphabet's advertising business.

The stock's recent recovery reflects both this peer outperformance and a bullish market for tech stocks this year.

Why the stock is a hold

It's The Trade Desk's strong fundamentals that make it a hold even though its stock price has soared. Few would have predicted that the company would grow its revenue 21% year over year in the first quarter of 2023 and guide for an 18% sequential uptick in its top line in Q2, even as many companies tighten their ad budgets during a challenging macroeconomic environment. Yet this is exactly what The Trade Desk did.

The Trade Desk CEO and founder Jeff Green even noted in the company's first-quarter earnings release that he expects 2023 to be a "pivotal year" as the ongoing shift from traditional TV to connected TV "continues to accelerate" and the programmatic digital advertising that is the company's bread and butter continues to gain traction within connected TV.

Trading at 72 times free cash flow, the stock is not cheap. Indeed, it's difficult to say with confidence that it even appears reasonably valued at this level. But given how the company has consistently delivered better-than-expected business performance recently, it could be a mistake to sell the stock just because shares appear pricey.

Overall, shares of The Trade Desk look like a hold today.