Reddit (RDDT) shares have seen significant volatility this year — up nearly 25% in 2025 and still boasting a remarkable 189% gain over the past twelve months. The sharp re-rating of its investment thesis has been fueled by stronger-than-expected results and Reddit’s unique positioning to capitalize on generative AI within the social media landscape.
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Although the San Francisco-based company has consistently beaten earnings expectations, much of the catalyst behind Reddit’s price performance—particularly this year—has been its sequential ability to grow traffic, especially in the U.S., which remains its primary revenue driver.
Recent swings in how LLMs cite or drive traffic to Reddit have introduced some turbulence, especially with Reddit stock trading at a very generous premium that arguably already reflects much of its moat in content well-suited for generative AI platforms.
That said, while there is still untapped growth potential—particularly in international markets—the company faces tough year-over-year comparisons going forward. For a stock priced to overdeliver, this creates an unattractive risk-return profile, which in my view justifies a Hold rating on RDDT at present.
Why Reddit’s Data Moat Powers Its Growth
Much of the enthusiasm behind Reddit’s stock performance today goes beyond simple digital advertising—the typical way social media platforms monetize. A significant part of the excitement stems from the perception that Reddit could become a key data supplier to third parties, from Big Tech training LLMs to hedge funds searching for alternative data.
Reddit’s moat lies in its collection of unique, highly niche, real-time conversational data—something extremely valuable for LLMs and difficult for Meta (META), Pinterest (PINS), or Snap (SNAP) to replicate.
While data licensing still accounts for only ~7% of revenue according to Q2 results, the interaction with AI and LLMs creates a kind of symbiotic effect: if AI models learn from Reddit’s data, users accessing AI tools like ChatGPT or Google AI often end up coming back to Reddit, driving additional traffic.
With LLMs increasingly used as a standard search tool, much of Reddit’s traffic growth has come from queries generated through these models. So much so that Reddit’s DAUq (daily active uniques) in the U.S.—which until recently accounted for about half of total DAUq—fell -0.4% QoQ in Q4 (February) due to changes in Google’s search algorithm. That small decline was enough to trigger a massive sell-off of Reddit shares, dropping by up to ~60% by April 4 (tariff-related sell-off day).
However, the recovery in subsequent quarters, with U.S. DAUq growing sequentially, showed there was no structural loss of traffic. Reddit quickly regained visibility in search rankings, reinforcing the resilience of its user base.
Reddit and the AI Traffic Rollercoaster
As much of Reddit’s traffic comes from external sources, recent data showed a sharp drop in ChatGPT citations of Reddit content—from 9.7% in early September to less than 2% in early October. The reasons for this decline aren’t entirely clear; they could stem from OpenAI adjusting its source selection or simply one-off factors.
Interestingly, ChatGPT co-founder Sam Altman owns 8.7% of Reddit, which raises questions about whether he could influence decisions at OpenAI that might negatively affect Reddit’s traffic—and, by extension, its stock performance.
Even though this news caused Reddit’s market value to drop by up to 16% over a couple of trading days, the decline in ChatGPT citations isn’t necessarily a dead end. Google, for example, expanded its AI Mode in August to hundreds of countries, and its AI Overviews feature already has billions of monthly users, with Reddit being the second-most cited source. This illustrates that multiple generative AI traffic funnels still exist, offering plenty of opportunities for Reddit to capture additional clicks.
Tough Comparisons and Premium Prices
Naturally, as Reddit gains more traffic and exposure, each new quarter needs sequential growth to meet the high expectations baked into its valuation. As the bar keeps rising, tough comps are likely to put pressure on Reddit’s results—especially after DAUq CAGR growth of 21% over the past twelve months.
Looking ahead to Reddit’s earnings report at the end of October, some analysts, such as Oppenheimer, expect U.S. Q3 DAUq to grow 0.8% QoQ based on third-party data. This would be the primary driver of revenue growth and could result in $0.8M–$1M above market consensus.
Even so, I anticipate that Reddit’s long-term thesis will remain volatile and highly dependent on sequential traffic outperformance. Investors are currently paying a price-to-sales multiple of 21.5x, nearly double Meta, almost nine times that of Snap, and four times that of Pinterest.
Is RDDT Stock a Buy, Hold, or Sell?
The consensus among analysts rates RDDT as a Moderate Buy, with 18 out of 25 ratings recommending Buy and the remaining seven recommending Hold. The current average price target is $238.08, implying an upside potential of roughly 14% from the latest share price.
Sizing Up RDDT’s Risks and Upside
I view Reddit’s thesis today as reasonably priced, reflecting the value of its unique, niche content, its revenue from data licensing, and the growing upside from integrating generative AI.
Looking ahead, with the bar for performance rising and multiples expanding, the risk-return profile appears unattractive, particularly if DAUq sequential growth faces headwinds stemming from periodic changes in third-party algorithms.
Primarily for valuation reasons, I’m comfortable staying on the sidelines with a Hold rating. I would become constructive again if U.S. traffic substantially exceeds expectations, thereby reducing concerns about AI algorithms potentially impacting visits in opaque ways and creating volatility in reported numbers from quarter to quarter.