Undervalued Growth Stocks Set for a 2026 Rebound: The Trade Desk and PayPal

In the realm of value-driven growth investing, the most compelling opportunities often emerge from stocks that have fallen out of favor. The Trade Desk (TTD) and PayPal (PYPL) exemplify this dynamic. Both have faced significant headwinds in 2025, with their shares plummeting amid operational challenges and macroeconomic pressures. Yet, beneath the surface, these companies are laying the groundwork for a 2026 rebound, driven by strategic reinvention, robust financials, and favorable industry trends. For investors willing to look beyond short-term volatility, they represent rare combinations of undervaluation and growth potential.

The Trade Desk: A Platform Reborn

The Trade Desk, the worst-performing stock in the S&P 500 in 2025, saw its shares drop roughly 70% as clients grappled with the transition to its AI-powered Kokai platform. The initial rollout of Kokai, designed to streamline ad-buying and enhance campaign efficiency, caused friction with advertisers, leading to client attrition and revenue shortfalls. However, the company has since turned a corner. By Q4 2025, over 85% of clients had adopted Kokai as their default platform, and the system now delivers measurable improvements: a 6% better cost per acquisition, a 58% better cost per unique reach, and a 94% better click-through rate compared to its predecessor. These metrics underscore Kokai's value proposition, particularly as advertisers seek to optimize ROI in an increasingly competitive digital landscape.

The Trade Desk's forward-looking strategy is further bolstered by its open-internet approach, which emphasizes cross-platform transparency and neutrality-a stark contrast to the walled gardens of Amazon, Google, and Meta. This positioning is critical as the company navigates intensified competition in connected TV (CTV) advertising, where it generated nearly 40% of revenue in Q2 2025. Meanwhile, the anticipated surge in political ad spending in 2026-a cyclical tailwind-could catalyze revenue growth. With a forward P/E ratio below 18 and a valuation that reflects market pessimism rather than fundamentals, The Trade Desk appears poised for a re-rating if its execution aligns with expectations.

PayPal: Share Buybacks and Strategic Resilience

PayPal's 30% stock decline in 2025 was driven by its inability to match the explosive growth of AI-centric peers. Yet, the company has offset this with a disciplined share buyback program, retiring 78 million shares in the past four quarters and boosting non-GAAP EPS by at least 15% in 2025. These buybacks, funded by a $14.4 billion cash balance and $2.3 billion in free cash flow, have not only enhanced shareholder value but also signaled management's confidence in the business's long-term durability.

PayPal's competitive advantages extend beyond its balance sheet. Its digital wallet ecosystem, bolstered by Buy Now, Pay Later services, continues to drive transaction volume growth despite macroeconomic headwinds like fluctuating interest rates. The company's recent initiation of a dividend-distributing 10% of net income to shareholders-further underscores its financial strength. At a forward P/E of just 10 times next year's earnings, PayPal trades at a discount to its historical averages, suggesting a compelling risk-reward profile for investors who believe in its ability to navigate a shifting payments landscape. Analysts project a 1-year price target of $83.10, implying significant upside from current levels.

Macroeconomic Tailwinds and Strategic Execution

Both companies benefit from broader macroeconomic trends. For The Trade Desk, the digital advertising sector is expected to rebound as political spending cycles intensify in 2026. Meanwhile, PayPal's focus on high-margin services and operational efficiency positions it to outperform in a low-growth environment. Crucially, both firms have demonstrated resilience in the face of adversity: The Trade Desk's Kokai platform has achieved critical mass, and PayPal's buyback program has already delivered tangible EPS growth.

Conclusion: Value-Driven Growth in Action

The Trade Desk and PayPal embody the principles of value-driven growth investing-combining undervaluation with catalysts for future growth. While neither is without risk, their strategic progress, financial discipline, and industry positioning make them compelling candidates for a 2026 rebound. For investors seeking to capitalize on market overcorrections, these stocks offer a rare blend of discounted valuations and tangible upside.