Shares of Reddit Inc., trading under the ticker RDDT, took a sharp hit this week, sliding more than 9% in a single session amid growing worries over its visibility in AI-driven searches. The drop came fast, erasing some of the gains the stock had built up earlier in the quarter when analysts were buzzing about its potential. Indeed, just a couple of weeks ago, Needham hiked its price target to $300 from $215, citing Reddit's strong user engagement and ad revenue prospects. But now, that optimism feels a bit shaky.
The catalyst? Fresh data showing a steep decline in how often OpenAI's ChatGPT references Reddit content in its responses. Citations plummeted in mid-September, according to reports circulating in investor circles, suggesting that the AI giant might be dialing back on pulling from the platform. This isn't just a minor blip; Reddit's traffic from AI sources has been a key growth driver, especially after deals with companies like Google and OpenAI to license its data. Without that, the company's path to profitability—already a work in progress with quarterly losses narrowing but still present—could get rockier.
Moreover, the stock has been volatile since its March debut, swinging from highs near $80 to recent lows around $120, reflecting broader market jitters over tech valuations. However, Reddit's core business remains robust, with daily active users topping 97 million and international expansion picking up steam. Still, this AI hiccup raises questions about over-reliance on partnerships that could shift overnight. Investors are watching closely as the company preps for its next earnings report, expected to shed light on these dynamics.
In the end, as tech stocks navigate these uncertain AI waters, one wonders if Reddit can diversify fast enough to steady the ship.