Why is Trade Desk stock surging today, and should you buy?

Trade Desk shares surged by over 20% during early trading on Thursday after a report said OpenAI had held discussions with the advertising technology company about helping sell ads on its flagship ChatGPT platform.

The stock was also buoyed by a form 4 disclosure that revealed that chief executive Jeff Green recently purchased about $148 million worth of company shares.

According to a report by The Information, citing unnamed sources, OpenAI has held early-stage talks with Trade Desk about selling advertisements within ChatGPT.

The artificial intelligence company is said to believe the move could help double revenue generated from consumer ChatGPT services to about $17 billion this year.

Potential OpenAI partnership fuels optimism

The rally offered a reprieve for Trade Desk after months of pressure on the stock.

TTD stock is down more than 33% so far this year and has fallen roughly 63% over the past 12 months, making it one of the worst-performing companies in the S&P 500 during that period.

The company has faced slowing revenue growth and intensifying competition from digital advertising giants such as Amazon and Alphabet’s Google.

Investors welcomed the possibility that Trade Desk could play a role in monetizing one of the world’s fastest-growing consumer technology platforms.

Trade Desk provides an automated platform that allows advertisers to buy and manage digital advertising across websites, streaming services and mobile apps while targeting audiences and measuring campaign performance.

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Can the news be a catalyst for the stock?

Analysts at Trefis said a potential partnership with OpenAI could give the company access to a fast-growing new advertising channel.

A tie-up would grant Trade Desk access to “a premier, high-growth advertising inventory,” the firm said, adding that such a development could shift the narrative around the company from concerns about slowing growth toward a renewed expansion story.

However, Trefis cautioned that confirmation of the talks from major outlets or analyst upgrades would be important for sustaining the rally.

If the discussions are later characterized as preliminary or fail to materialize, the surge could quickly lose momentum.

"A failure to hold the initial morning high would signal a powerful rejection and a potential bull trap," it said.

The stock also received a boost after disclosures that Green had purchased roughly $148 million worth of Trade Desk shares on the open market.

Large insider purchases are often interpreted by investors as a sign of management confidence in a company’s long-term prospects, particularly when the stock has faced a prolonged downturn.

Should you invest in TTD?

"The confluence of a massive insider buy and a major potential AI partnership is a significant development. The pivot price will be the key to determining if this is a true turning point for the stock," Trefis said.

Out of 42 analysts covering TTD, 38 rate the stock Buy, Overweight, or Hold, according to WSJ data.

The consensus price target of $32 implies more than 25% upside from current levels, even before factoring in any potential benefit from an OpenAI partnership.

Only four analysts maintain underweight or sell ratings, suggesting that institutional investors have largely not abandoned the name.

"TTD is a fundamentally strong business — growing at 3-4x the market rate, generating exceptional cash flows, carrying net cash — that has been sold down 63% because its growth slowed from exceptional to merely very good," Trefis said.

"That’s a mismatch between price and reality, and it’s where investment opportunities tend to emerge."

It said the bullish case is not without risks as investors could continue to penalise TTD for moderating growth and intensifying competition, and the anticipated OpenAI partnership may ultimately fail to materialize.

"But multiple compression seems to have largely run its course, the risk-reward looks favorable, and a new growth catalyst is now on the table. For investors with appropriate risk tolerance, the case for owning TTD here is compelling," it said.

For intraday traders, Trefis recommended: "BUY THE OPEN if TTD consolidates above $28.75 in the first 30 minutes, looking for continuation.

Alternatively, FADE THE GAP if it fails to hold $28.75, indicating initial buying pressure exhaustion and a potential retrace," Trefis recommended.