Reddit (RDDT) shares slid sharply this week after new data suggested the platform’s content is being cited less frequently by ChatGPT, raising fresh questions about the value of its data-licensing deals and the sustainability of its growth story.
Key Points
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Reddit stock dropped more than 10% after data showed a steep decline in ChatGPT’s use of its content.
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Analysts noted concerns over falling daily active users (DAUs) alongside reduced AI citations.
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Despite volatility, Reddit’s advertising revenue remains a bright spot, surging 84% year-over-year.
Why Did Reddit’s Stock Drop This Week?
Reddit’s shares fell nearly 10% on Wednesday after reports revealed a sharp drop in how often ChatGPT cites Reddit content. Data from Promptwatch showed Reddit’s citation share in ChatGPT answers plunged from nearly 30% earlier in September to just over 5% by the middle of the month.
This raised concerns about whether Reddit’s billion-dollar licensing deals with OpenAI and Google (GOOG)—which allow these companies to use its content to train AI models—are as valuable as investors first thought.
Adding to the pressure, Similarweb data flagged a decline in daily active users (DAUs) over a 30-day average. Since Reddit’s engagement levels often determine advertising strength and overall platform health, the market reacted swiftly.
How Does Google’s Search Change Factor In?
One reason for the sudden decline in AI citations may be linked to Google adjusting its indexing parameters. Instead of allowing models to pull 100 results per page, the cap was reduced to 10. This effectively cut the amount of data third-party AI systems like ChatGPT could access.
While this doesn’t necessarily mean Reddit’s value to AI partners has diminished long term, it highlights how dependent the company’s traffic and visibility are on search-engine rules and AI algorithms—factors outside of its direct control.
Is Reddit Still Growing Financially?
Yes. Despite the volatility, Reddit’s advertising business is showing strong momentum. In the second quarter, ad revenue jumped 84% year-over-year to $465 million, making up more than 90% of total revenue. This was the company’s fastest growth rate in three years.
Shares of Reddit are still up over 25% year-to-date, though the latest selloff leaves the stock about 23% below its September high of $270.
What It Means for Investors
Reddit’s slump underscores the risks of investing in companies tied to fast-changing technologies like generative AI. While the platform’s advertising growth is encouraging, declining DAUs and uncertainty around AI data usage could weigh on sentiment in the near term.
For long-term investors, the bigger question is whether Reddit can keep monetizing its vast community base while navigating external shifts in search and AI.
Conclusion
Reddit remains one of the most talked-about social media IPOs in recent years. However, its heavy reliance on advertising, partnerships with AI companies, and user engagement trends makes it a volatile stock. Investors should expect more swings as the company negotiates future licensing deals and works to stabilize user growth.
FAQs
Why is Reddit’s stock falling right now?
Reddit stock is falling because data showed ChatGPT is citing its content less frequently, raising doubts about the value of its AI licensing deals. At the same time, daily active users have been slipping.
Does Reddit make most of its money from AI deals?
No. The majority of Reddit’s revenue—about 93% last quarter—comes from advertising, not data licensing. While AI partnerships with OpenAI and Google are important, they remain secondary to ad revenue.
Is Reddit still a growth stock?
Yes, but with risks. Reddit’s ad revenue surged 84% in its latest quarter, its fastest growth in three years. However, user growth volatility and external factors like tariffs, AI usage, and Google’s search changes make the stock highly unpredictable.
Could Reddit’s AI licensing deals become more valuable again?
Potentially. Reddit is exploring dynamic pricing agreements, which would let it earn more money as its content is used more often in AI models. If usage rebounds or terms improve, these deals could provide a bigger revenue stream.
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