The S&P 500 (^GSPC 1.07%) is a diversified stock market index featuring 500 companies from 11 different sectors of the economy. To qualify for inclusion, a company must have a market capitalization of at least $22.7 billion, and it also must be profitable. But even after ticking those boxes, a special committee has the final say to ensure only the highest-quality companies make the cut.
Interactive Brokers (IBKR 0.94%) operates one of the world's largest online investing platforms, where its clients can buy and sell thousands of different stocks, options contracts, futures contracts, cryptocurrencies, and more. It was admitted into the S&P 500 in August, replacing Walgreens Boots Alliance, which vacated its spot in the index after going private.
Interactive Brokers is growing rapidly, and its stock has delivered a whopping 45% return this year alone. It's crushing the S&P 500 itself, which is up 13% year to date, and it's even beating artificial intelligence (AI) powerhouse Nvidia, which has gained 30%. Here's why it's not too late to buy.
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Interactive is enjoying a surge in its client base
A rising stock market tends to attract new investors. Interactive recently reported its operating results for the third quarter of 2025 (ended Sept. 30), and it had a record 4.13 million client accounts, which was up by a whopping 32% from the year-ago period.
Customer equity -- which represents the dollar value of all cash and financial securities held on Interactive's platform -- soared by 40% to a record $757 billion. The company earns commissions based on the value of every stock, options, futures, or cryptocurrency transaction executed by its clients, so a higher customer equity figure can directly lead to more revenue.
Speaking of transactions, Interactive saw an eye-popping 67% increase in share trading volume during the third quarter, driven by new and existing clients trying to capture a slice of the surging U.S. stock market. The platform processed 3.62 million DARTs (daily active revenue trades) across all financial securities, which was up 32% year over year.
Finally, in the surest sign of bullish investor sentiment, Interactive's margin loan book grew by 39% to $77.3 billion. Clients typically borrow money to buy stocks and other securities when they feel supremely confident there will be further upside. They aren't always right, but this is great for Interactive, which earns interest on margin loans and also earns commissions when the money is put to work.
Interactive had a strong quarter at the top and bottom line
Interactive generated $1.65 billion in total revenue during the third quarter, representing 21% growth from the year-ago period. There were two main components to that figure:
- Commission revenue, which is the money Interactive earns from processing client transactions. It came in at $537 million, which was up 23% year over year.
- Net interest revenue, which is the interest Interactive earns on the cash it's holding for clients, plus its own cash reserves, and on margin loans. This came in at $967 million during the quarter, growing by 21%.
The company has a third revenue component made up of other service fees and income, but it's typically quite small and came in at just $151 million in Q3.
Interactive also had a strong quarter at the bottom line, helped along by a reduction in operating costs. The company generated earnings of $0.59 per share, which was up 40% from the year-ago period.
It's worth pointing out a potential headwind lurking on the horizon for Interactive's net interest revenue. The U.S. Federal Reserve cut interest rates in September for the first time in 2025, and it's widely expected to deliver two more cuts before the year is over. This could bring down the interest rate Interactive can charge on margin loans, and it will also lower the yield on its various cash balances.
Interactive stock could be a solid long-term buy
Interactive has generated earnings of $2.08 per share over the last four quarters, and based on its stock price of $68.40 as I write this, that places its price-to-earnings (P/E) ratio at 32.8. It isn't cheap considering the S&P 500 trades at a P/E ratio of around 25.6, but the premium might be warranted given the substantial growth in its business.
Interactive's customer base has now grown by at least 30% for four consecutive quarters, and the massive increase in client equity has given the company a substantial potential fee base. Plus, even if falling interest rates become a headwind for its net interest income, Interactive's margin loan book is generating more than enough growth to offset them, at least for now.
Interactive's valuation might be a barrier to further upside in the short term, but as long as the momentum in its business continues, investors might be glad they added its stock to their portfolios when they look back on this moment in a few years' time. After all, it has generated a return of over 760% since it went public in 2007, more than doubling the 340% return in the S&P 500 over the same period.
