The Trade Desk (TTD -1.57%) has been off to the races so far in 2023, driven higher by a resurgence in technology stocks. Shares of the digital advertising specialist are up 75% so far this year, which is five times the increase of the S&P 500. The results come in stark contrast to its performance last year when the stock cratered 51%. 

There's little question that the beginning of a recovery in advertising has helped fuel its rise. It's worth noting, however, that even in the face of the stiffest economic headwinds in more than a decade, The Trade Desk continued to generate year-over-year growth, even as its rivals faltered. This suggests that the company is well positioned to ride the market rebound higher, even as it gains market share at the expense of the competition.

What does this mean for those who missed out on The Trade Desk's significant move higher? Should they buy the stock now in anticipation of another leg up or put off buying because of its pricey valuation and uncertainty about whether the rebound in the digital advertising market will continue? Let's take a step back to see what the evidence tells us.

A person sitting at a desk reviewing documents in front of a computer monitor.

Image source: Getty Images.

What was weighing on The Trade Desk stock?

The Trade Desk's resilience in the face of a struggling economy was the result of the company's industry-leading technology, which not only targets the right audience but also gets advertisers the most bang for their buck. The Trade Desk's transparent pricing and measurable results provide assurances to marketers that they're getting what they pay for.

It's well documented that the advertising industry suffers during times of economic uncertainty since it's a line item on the budget that can generally be dialed back and ramped up without disrupting business operations. That was evident in The Trade Desk's 2022 results. While revenue still grew a respectable 32%, it was a far cry from the 43% growth it generated the year before. 

For context, rival ad tech company Alphabet grew Google's advertising revenue by just 7%, while Meta Platforms saw ad sales decline by 1% during the same period. This illustrates that even in a tough economy, The Trade Desk continued to steal market share from its larger rivals.

However, there are signs that the worst may be behind us. The Trade Desk reported first-quarter results that far outpaced expectations, and management forecast revenue growth of 43% in the second quarter, its highest growth since this time last year.

What could drive The Trade Desk stock higher?

A broader recovery in the advertising market aside, there are other catalysts that could help drive The Trade Desk stock even higher.

Digital advertising continues to increase its share of overall advertising and is expected to account for $0.58 of every ad dollar spent in 2023. Programmatic advertising, which uses sophisticated algorithms and high-speed computers to connect with its target market, is the fastest-growing segment of the market and The Trade Desk's bread and butter. The company was already the best in the business but recently introduced upgrades to further expand its lead.

In early June, The Trade Desk launched Kokai, its revolutionary "media buying platform that brings the full power of AI to digital marketing." The platform "distributes deep learning algorithms" to every step of the ad buying process, enabling more than 13 million ad impressions per second, helping marketers "buy the right ad impressions, at the right price, to reach the target audience at the best time." 

The company continues to add new tools to measure performance across key channels, ensuring marketers know they got what they paid for. This helps differentiate The Trade Desk from many of its competitors and explains why it generated growth even in the face of difficult market conditions.

How to approach The Trade Desk stock now

To be clear, The Trade Desk's stock isn't cheap now, nor has it ever been when measured using traditional valuation metrics. The stock is currently selling for 64 times forward earnings and 16 times forward sales, which would likely make value investors run for cover. However, given the company's consistent track record of above-average growth -- even in the face of macroeconomic headwinds -- I'd argue that's a reasonable price to pay. Furthermore, The Trade Desk is expected to increase its revenue and earnings per share by double digits through 2024. Given its history, that could end up being conservative. 

The evidence suggests that The Trade Desk's recovery will likely accelerate as the economy rebounds, and that could happen sooner than investors might think.