Shares of Reddit Inc. (RDDT) took a sharp hit this week, dropping nearly 9% on Tuesday alone amid growing concerns over its role in the AI ecosystem. The stock, which had been riding high earlier in the month, closed at around $140, down from peaks above $160 just weeks ago. Investors seemed spooked by reports highlighting a steep decline in how often ChatGPT, the popular AI chatbot from OpenAI, references Reddit content in its responses. Indeed, data showed citations plummeting in mid-September, raising questions about the sustainability of Reddit's partnerships with tech giants hungry for training data.
This isn't the first bump for RDDT since its much-hyped IPO earlier this year, but the timing feels particularly raw. Analysts point to a broader shift in AI models favoring other sources, potentially eroding the value of Reddit's vast user-generated archives that once promised a revenue windfall through data licensing deals. Back in mid-September, optimism was the word when Needham bumped its price target to $300, citing strong user growth and ad revenue potential. However, that glow faded fast as fresh metrics revealed ChatGPT pulling back—references dropped by over 50% in some categories, according to observers tracking the tool's outputs.
Moreover, Reddit's own efforts to monetize its communities haven't fully offset the volatility. The platform reported solid quarterly figures last month, with daily active users hitting 97 million, up 51% year-over-year. Yet, the stock's reaction underscores a harsh reality: in the AI arms race, being a go-to data mine isn't guaranteed. Executives have downplayed the ChatGPT dip, emphasizing diversified deals with Google and others, but the market's verdict was swift and unforgiving. Indeed, trading volume surged during the sell-off, with shares changing hands at a clip that suggests institutional players are rethinking their bets.
Still, some see this as a buying opportunity, given Reddit's entrenched position in online discourse. But as AI evolves, one can't help but wonder if the platform's influence will hold steady or slip further into the digital background.