Reddit’s (RDDT) platform, built around niche communities with a strong culture of questions and answers, creates a rare and valuable asset in the AI world: content genuinely generated by humans. The company’s management team has successfully monetized this potential through AI licensing, with LLM models incorporating subreddit content into search results, driving major increases in traffic and giving premium advertisers the opportunity to reach highly targeted, carefully selected audiences.
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The results are already bearing good fruit. Reddit has delivered significant beats on both top and bottom line expectations and is growing ARPU at a much faster rate than other social media peers. What’s more, this accelerated growth trend appears likely to continue in the coming years.
There’s no denying that recent bullish momentum has driven Reddit’s stock to lofty levels, with shares now trading at a premium valuation. Yet those multiples appear justified given Reddit’s unique moat, which enables AI monetization in ways competitors cannot—and perhaps never will. All told, Reddit merits a Buy rating, though not for the reasons many investors might initially assume.
Expectations Soar Alongside Reddit Shares
Expectations are arguably the primary driver of a stock’s short- to medium-term price, and Reddit is no exception. Reddit’s shares have shown super bullish momentum—up 123% in the last three months and more than 344% over the past year—which can be attributed to a massive wave of market participants excited about its top- and bottom-line growth potential.
Looking at the numbers, six months ago, analysts expected Reddit to deliver EPS of $1.14 in Fiscal 2025. Today, that estimate has jumped to $1.86—a 63% increase in projections. In just the last three months alone, EPS expectations have risen by more than 40%. And it’s not just the current fiscal year: EPS projections for 2026 and 2027 have increased by 31% and 14%, respectively, already factoring in earnings above $4 per share by the end of 2027. In other words, this implies a “clean” CAGR in EPS of 47% from 2025 to 2027.
These optimistic earnings projections are backed by equally bullish revenue expectations. Analysts now forecast full-year 2025 revenues of $2.06 billion—a 58% increase over 2024 and almost 14% higher than what was expected two quarters ago. Looking ahead, consensus estimates project 32% growth in 2026 and another 27% in 2027, both roughly 15% higher than forecasts made six months ago.
As illustrated in the chart below, Reddit’s stock price and trading volume this year show a clear trend: the volume of gains has outpaced the volume of declines (as seen in the on-balance-volume indicator). That is to say, buyers are accumulating more shares, confirming genuine market support. These market revisions are backed by real volume, suggesting that the recent triple-digit gains aren’t just a one-off speculative spike, but reflect a consistent inflow of new money.
Why Optimism Around Reddit Keeps Growing
The constant upward revisions of Reddit’s top and bottom line—both for this year and the coming years—are anchored in the fact that the company was undervalued after its IPO. As a general rule, with recent IPOs, the market tends to be conservative until consistency is proven.
Reddit is still relatively new as a publicly traded company, with just over a year on the stock market. As a result, there remains limited historical data to reliably project monetization, user growth, and other key metrics.
For example, in the last two quarters, Q1 profits came in ~550% above expectations ($0.13 EPS vs. $0.02 consensus), with revenues up 61% year-over-year. In Q2, revenues grew another 78%, and profits beat estimates by ~137% ($0.45 EPS vs. $0.19 consensus).
A major factor behind this growth is the difficulty analysts have had in quantifying the immediate impact of AI integration and data licensing with Alphabet (GOOGL), OpenAI, and other Big Tech companies—Reddit forum responses are increasingly appearing in ChatGPT and Google’s AI search features.
The new “Reddit Answers” search engine, implemented at the end of last year, has driven traffic and engagement faster than expected. The result: accelerated ad spending and a 47% year-over-year rise in ARPU, surpassing initial projections that anticipated a more gradual impact—similar to other social networks, which often see strong user growth but slower monetization.
Reddit’s Competitive Edge in Social Media and AI
Reddit’s main moat in the social media universe lies in its rich dataset of conversations and opinions within niches (subreddits) and its strong culture of questions and answers. With the company advancing in search through AI, each response can deliver highly contextual ads alongside content, opening a new format for premium advertising. This, essentially, explains the 47% growth in ARPU in the last quarter.
The “defensive” network effect Reddit has built makes it difficult for Facebook (META), Instagram, Snap (SNAP), or Pinterest (PINS) to replicate without reconstructing a similar structure of engaged communities from scratch. Reddit appears to use AI more effectively than its peers, generating correct answers that are less superficial and better capture the nuances and culture of the communities where the content is organically created. With a strong moat, it’s reasonable for the company to trade at a premium.
Investors buying RDDT shares today are paying roughly 62x forward earnings, more than 300% above the industry average. Stretching long-term (3- to 5-year) EPS CAGR projections of 36%, the PEG ratio comes to 1.72. These multiples aren’t cheap, but they are justified for a company with a moat in the social media space—one that is arguably leading the way in using AI to improve monetization.
Is RDDT a Buy, Sell, or Hold?
While Wall Street analysts have generally maintained a bullish outlook on Reddit’s stock, some skepticism persists at current price levels. Over the past three months, 25 analysts have issued ratings: 15 are bullish, eight are neutral, and one is bearish. RDDT’s average stock price target stands at $200.29, representing a potential downside of 17% over the next year.
Dominating AI Monetization in the Social Media Landscape
The odds are clearly in Reddit’s favor. Momentum is firmly supported by optimistic market reviews, with new money flowing in—not just from speculation, but from significant advances in monetization beyond expectations, mainly driven by AI licensing integration. Reddit’s most valuable asset is the spontaneity of content authentically created by its users, which perfectly positions the platform to leverage AI trends into tangible profits to appease shareholders. As the platform’s content is increasingly incorporated into LLMs, this makes Reddit increasingly attractive to premium advertisers targeting niche audiences.
Valuations are undeniably high, but as long as bullish momentum continues—with no significant declines in key growth metrics or structural changes to its moat—the premium remains justified, supporting a Buy rating.