After hovering in 2024, shares of Reddit (RDDT -1.62%) are down about 25% in 2025, as of this writing. Reddit has continued to report spectacular income progress as proof of its attraction to manufacturers in a rising digital promoting market.
Nonetheless, opinions on Wall Avenue have been combined currently. This stems from Google’s current shift to synthetic intelligence (AI) search summaries. Reddit desires as many guests to its platform as potential to maximise its attraction to advertisers, however analysts consider Google’s AI Overviews and different modifications to its search algorithms will take away the necessity for folks to go to Reddit.
Whereas buyers needs to be aware of this menace, there’s nonetheless good purpose to consider Reddit can ship extra progress for buyers.
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Wall Avenue sours on Reddit over AI danger
Many Reddit customers are in search of data on merchandise they’re considering of shopping for. This is the reason advertisers proceed to extend their spending on the platform — advert income grew 61% yr over yr to $359 million within the first quarter.
However there’s a menace from AI fashions like ChatGPT, Grok, and Google’s Gemini, which might summarize the entire data a person wants primarily based on easy search queries. Perplexity already has a cope with Shopify to let customers purchase merchandise they discover utilizing its AI search engine.
Google’s integration of AI in its search engine might pose a menace to Reddit’s dependency on Google Search outcomes to draw customers. Wells Fargo analyst Ken Gawrelski downgraded the inventory from obese to equal weight after Reddit’s first-quarter earnings report. The analyst believes Google’s transfer towards AI-driven search will probably result in declines in visitors to Reddit.
It is important for buyers to concentrate on the problem these AI fashions pose to Reddit’s enterprise. That stated, these fashions have been round for a number of years now, and the corporate continues to be posting robust person and income progress. There’s one essential benefit Reddit has that AI cannot compete with.
Why Reddit can thrive within the AI period
AI fashions are very environment friendly at offering summaries and solutions, but it surely’s not the identical as interacting with different folks. Even whereas utilization of AI fashions will increase, there’ll nonetheless be demand for on-line social interplay, which AI summaries cannot fairly change.
Reddit’s newest monetary report exhibits persons are nonetheless extremely engaged with the platform and visiting in giant numbers. It ended Q1 with over 400 million weekly energetic customers and 108 million each day energetic customers. These customers have created over 100,000 communities on the platform.
As a result of many of those persons are visiting Reddit to study services and products, it makes the platform the right car for manufacturers to take a position. Common income per person grew 23% yr over yr within the quarter, which alerts robust advert efficiency, improved concentrating on, and rising attraction of the platform to advertisers.
Reddit is even benefiting from the usage of its knowledge to coach AI fashions. Its different income, together with knowledge licensing gross sales, grew 66% yr over yr to $34 million. The billions of posts and knowledge it has collected from person interactions present Reddit with a beneficial asset and aggressive benefit.
These are wholesome indicators of a vibrant platform. Traders ought to concentrate on the dangers and monitor Reddit‘s earnings studies for indicators of weakening momentum, however that is nonetheless a wholesome, fast-growing enterprise. The inventory’s current dip is a shopping for alternative.
Wells Fargo is an promoting accomplice of Motley Idiot Cash. Suzanne Frey, an govt at Alphabet, is a member of The Motley Idiot’s board of administrators. John Ballard has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Alphabet and Shopify. The Motley Idiot has a disclosure coverage.
