Certain Wall Street analysts see The Trade Desk (TTD 1.36%) and Upstart (UPST +4.32%) as no-brainer buying opportunities at their current prices, as detailed below:
- The Trade Desk is 49% below its record high. But Shyam Patil at Susquehanna has set the stock with a target price of $135 per share. That implies 90% upside from its current share price of $71.
- Upstart is 86% below its record high. But Dan Dolev at Mizuho has set the stock with a target price of $85 per share. That implies 57% upside from its current share price of $54.
Here's what investors should know about The Trade Desk and Upstart.
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The Trade Desk: 90% implied upside
The Trade Desk operates the leading independent demand-side platform (DSP), software that helps media buyers plan, measure, and optimize ad campaigns. The Trade Desk is considered an independent ad tech company because it does not own media content and, therefore, has no reason to steer media buyers toward specific ad inventory. That differentiates the company from rivals such as Alphabet's Google and Meta Platforms.
Importantly, The Trade Desk was recognized as a DSP technology leader in recent reports from Forrester Research and Frost & Sullivan. Analysts mentioned its dominance in connected TV advertising and its use of artificial intelligence (AI) as key strengths. The company in 2023 announced Kokai, a platform upgrade featuring new AI capabilities that optimize the digital media buying process, helping advertisers buy the right impression at the right price to reach the right audience.
In addition, The Trade Desk has a strong position in retail advertising, where partnerships with industry giants such as Albertsons, Dollar General, and Walmart provide the company with data that creates unique measurement opportunities on its platform. CEO Jeff Green recently told analysts, "We are convinced that based on the current landscape and current competitive set, we are the best positioned to win the lion's share of market share."
Wall Street expects The Trade Desk's earnings to increase at 12% annually through 2026. That puts the current valuation of 31 times earnings between reasonable and expensive, but the company may perform better than the average analyst anticipates. The Trade Desk beat the consensus earnings estimate by an average of 11% in the last six quarters, and ad tech spending is forecast to increase at 14% annually through 2030.
Here's the takeaway: The Trade Desk has a strong competitive position in a quickly growing industry. Shares are not cheap today, nor are they absurdly expensive. Of course, there is no guarantee the stock ever regains its previous record high, but patient investors should feel comfortable buying a small position.
NASDAQ: UPST
Key Data Points
Upstart: 57% implied upside
Upstart provides a lending platform that leans on artificial intelligence to help banks and credit unions quantify credit risk more accurately than traditional credit scores. Its machine learning models analyze thousands of signals across millions of repayment events to identify fraud and estimate the odds of default. Comparatively, traditional models consider a few dozen variables at most.
Upstart says its AI models can approve more borrowers at lower interest rates than tradition underwriting models, which means its platform lets lenders operate more profitably. That value proposition should only strengthen over time. Its platform benefits from a network effect whereby the underlying AI models become more intelligent each time a borrower makes or misses a payment.
As a caveat, Upstart is highly sensitive to interest rates. Loan originated on its platform during the last eight quarters delivered annual returns that exceeded the 2-year Treasury yield by more than 8 percentage points. That is a compelling return on investment, but the risk profile would change if the Federal Reserve raises interest rates, and Upstart would likely see less demand for its platform.
Nevertheless, Wall Street estimates the company's adjusted earnings will increase at 195% annually through 2026. That makes the current valuation of 165 times earnings look reasonable. Additionally, the stock currently trades at 6.9 times sales, a discount to the one-year average of 7.3 times sales.
Here's the takeaway: As with The Trade Desk, there is no guarantee Upstart ever regains its previous record high. But the company has a compelling value proposition for banks and credit unions, which should drive adoption of its AI lending platform over time. Long-term investors should feel comfortable buying a small position today.
