This Artificial Intelligence (AI) Stock Just Dropped, and That's a Buying Opportunity

Key Points

• The Trade Desk stock slumped after earnings, the second post-earnings drop this year.

• Shares of the digital ad specialist now sell at a forward price-to-earnings multiple of 30.

• Artificial intelligence is upgrading the user experience on The Trade Desk's platform.

• 10 stocks we like better than The Trade Desk ›

Investors tend to want to avoid stocks after they have made a significant drop. Such price action points to problems investors either did not understand previously or ignored for whatever reason. This is likely the case with The Trade Desk (NASDAQ: TTD) after announcing its earnings for the second quarter of 2025, and the price fell 39% the following trading day.

In The Trade Desk's case, investors dealt with elevated expectations and valuations. They have also become increasingly aware of the effects of the "walled gardens" that limit engagement with the largest ad platforms such as Alphabet's Google and Amazon.

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Despite such concerns, The Trade Desk may still be a buy, and here is why investors should still consider owning this stock that is widening its competitive moat through artificial intelligence (AI).

Image source: Getty Images.

The Trade Desk's Q2 earnings

For the second time this year, the stock fell after releasing an earnings report that arguably brought more positives than negatives.

Its second-quarter revenue was $694 million, a 19% yearly increase and slightly ahead of analyst expectations. The company also beat analyst estimates on earnings, though the $90 million in net income rose by 6% compared to year-ago levels, primarily due to a 56% in its provision for income taxes.

Still, the company's third-quarter revenue forecast of $717 million fell slightly short of expectations. It also implied a 14% yearly growth rate, increasing concerns over the company's long-term growth.

The company announced the departure of its chief financial officer. When combined with the increased concerns over the "walled gardens" eating into market share and a pre-announcement price-to-earnings ratio (P/E) of 108, that could have prompted investors to rethink what had become an elevated valuation.

This decline slightly surpasses its one-day drop following fourth-quarter earnings, when investors sold the stock after it missed its own revenue target for the quarter. Although The Trade Desk's stock rose after first-quarter earnings, this may undermine investor confidence.

Why investors should consider buying The Trade Desk anyway

Nonetheless, the sell-off has made the valuation more attractive. The trailing P/E that was 108 has now fallen to 65. Moreover, the stock sells for 31 times forward earnings.

Even if revenue growth slows to 14%, that could still prompt rapid net income growth at the same time investors become more accustomed to a tax rate more fitting of a consistently profitable company.

Furthermore, AI is on track to supercharge this growth. The company is in the process of switching from Solimar to Kokai. Solimar specializes in optimizing digital ad campaigns, but with the AI-driven Kokai platform, users have a more holistic approach to media buying, applying deep-learning algorithms to every aspect of the process.

Thus, Kokai leverages AI for better forecasting, predictive bidding, and impression scoring. Moreover, it enables users to allocate ad budgets more effectively and curate premium ad inventory.

And The Trade Desk offers a neutral platform targeting digital ad opportunities on every platform. This lack of bias helps advertisers and ad agencies place ads where they can best perform, unencumbered by biases that a Google or Amazon might have toward those platforms.

Furthermore, the numbers are likely lower amid a sluggish economy. Still, that price action is probably cyclical, and the predictions for 17% revenue growth in 2025 and 18% the following year do not point to a significant slowdown. That means growth could easily accelerate, reinforcing the buy case for the stock.

The Trade Desk buying opportunity

Amid the considerable drop in the stock price, investors have a tremendous opportunity to buy it at a significant discount. Indeed, the sell-off is the second huge post-earnings sell-off over three quarters, and such price behavior could diminish confidence in the stock.

However, thanks to the discounted price, the forward P/E of 30 makes the stock particularly attractive. Also, forecasts so far indicate that the slowing to 14% revenue growth may be temporary. Assuming a reacceleration of revenue growth occurs, investors will likely wish they had bought shares at current prices.

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Will Healy has positions in The Trade Desk. The Motley Fool has positions in and recommends Alphabet, Amazon, and The Trade Desk. The Motley Fool has a disclosure policy.