Investors looking to buy relatively cheap AI stocks may want to take a look at this stock, which has a strong position in a lucrative market.
There is no doubt that Nvidia (NVDA 3.58%) The company has been one of the most-bought artificial intelligence (AI) stocks on the market over the past year and a half due to its important role in advancing artificial intelligence (AI) technology.
After all, training large-scale language models (LLMs) such as ChatGPT would not be possible without Nvidia chips. Major cloud computing companies and governments around the world are lining up to buy his Nvidia AI graphics processing units (GPUs), leading to impressive growth in the company's revenue and profits.
NVDA Revenue (TTM) Data by YCharts
There's a good chance that Nvidia can maintain the impressive growth it's achieving in revenue and bottom line. That's because the company's dominant position in the AI ​​chip market appears secure given its technological lead over its competitors. But investors reluctant to pay Nvidia's high valuation may be looking for alternative ways to capitalize on the AI ​​boom.
Nvidia trades at a price-to-earnings multiple of 75. Sustaining breakneck growth may justify its valuation, but for investors looking for cheaper AI stocks, trade desk (TTD 4.72%) It could be a top pick that could be an even better buy than Nvidia. Let's see why.
Trade Desk leverages AI to gain market share in lucrative niches
The Trade Desk provides advertisers with a cloud-based, data-driven programmatic advertising platform. The platform allows advertisers to buy ad inventory from multiple channels, set up, run and optimize ad campaigns, and cost-effectively deliver ads to the right audiences on relevant platforms. can increase your return on investment.
The company uses real-time insights and algorithms to help advertisers using its platform get the most out of their ad spend. More importantly, The Trade Desk is leveraging its AI to help advertisers get more out of its platform. The company launched his AI tool known as Koa in 2018 and began integrating it into its platform. Koa analyzed nearly 9 million queries per second “to help buyers expand their audience reach and spend more efficiently.”
More specifically, The Trade Desk claimed that Koa can help advertisers triple their reach and reduce costs by 20%. Last year, the company released a new AI tool called Kokai, which uses its 13 million ad impressions per second to help advertisers “buy the right ad impressions at the right price and reach their target audience at the right time.” We will support them so that they can reach them.”
Thanks to AI-enabled tools like these, The Trade Desk is growing faster than the digital advertising market and accelerating its growth. For example, the company's revenue in 2023 increased by 23% to $1.95 billion. This is significantly higher than last year's 10.7% growth in digital ad spending. More importantly, The Trade Desk's latest results for Q1 2024 suggest the company is capturing a larger share of the digital advertising market as its growth accelerates.
The company reported a 28% year-over-year increase in revenue to $491 million last quarter. This was a significant increase from the 21% year-over-year growth recorded in the same period last year. The company's adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin also increased by 5 percentage points from the same period last year.
The Trade Desk's earnings per share were $0.26, beating the consensus estimate of $0.22 per share. Revenue also exceeded expectations of $480 million. Even better, The Trade Desk's revenue outlook is $575 million, beating Wall Street's forecast of $567 million. The EBITDA estimate of $223 million also exceeded the consensus estimate of $219 million.
The company's quarterly revenue forecast is for a 23% year-over-year increase, while adjusted EBITDA is expected to increase by a similar number. Additionally, digital ad spending is estimated to grow 13.2% in 2024, and The Trade Desk's first-quarter growth rate and second-quarter guidance suggest that digital ad spending will again outpace the market. It is also worth noting that
Therefore, The Trade Desk's strategy to leverage AI to power its programmatic advertising platform will help it capture a larger share of the digital advertising market. This should bode well for the company's long-term growth. The digital advertising market is expected to generate $1.15 trillion in annual revenue by 2030, up from $420 billion last year, according to Grandview Research.
So The Trade Desk has a big opportunity to address, and the fact that it's establishing itself in the digital advertising market explains why analysts have high growth expectations for the company.
TTD Revenue Forecast for Current Year Data by YCharts
Investors can expect the stock price to deliver healthy returns
Trade Desk stock currently trades at 21 times sales, which is slightly lower than its average multiple of about 24 times sales over the past five years. Of course, the sales multiple is higher than the US tech sector's price-sales multiple of 7x, but given the Trade Desk's growth in the digital advertising market, it may be justified.
As shown in the graph in the previous paragraph, if The Trade Desk maintains its current sales multiple in three years and achieves revenue of $3.52 billion in 2026, its market cap could increase to $74 billion. there is. This represents an increase of 72% from current levels.
The Trade Desk is also cheaper than Nvidia, which has a sales multiple of 36x. So investors looking for a relatively cheap alternative to Nvidia could consider buying The Trade Desk as it could be his top AI stock.