Reddit’s AI Advertising Boosts Stock (RDDT) Sentiment, Underperforming YTD

Reddit's stock price (NASDAQ: RDDT) is currently trading at $133.84, marking a 6.07% surge from the previous day's close and an impressive 23.94% increase over the past month.

This impressive shift in sentiment, following an earlier 45% decline in the stock leading into May is fueled by a combination of strategic initiatives, particularly the integration of AI into its advertising platform and the overall growth of its digital advertising business.

RDDT trades 19.3% below where it began the year, whilst the S&P 500 has added 1.95% on the period. Despite the current action taking place far below the high of $230.41, those who have been with the stock for a while can continue to point to gains of 122% over the past 12 months.

However, analysts are also sounding notes of caution regarding the sustainability of Reddit's growth, particularly its reliance on external factors like Google's search algorithm.

Recent Developments – Sentiment Shifting?

• Launch of AI-Driven Advertising Tools on June 16, 2025
• Strong Q2 revenue forecast of $410-430 million, exceeding analyst expectations
• Strategic partnership with OpenAI announced in March 2025

The launch of new AI-powered advertising tools at the Cannes Lions Festival of Creativity has generated significant buzz. These tools, including “Reddit Insights” (real-time trend analysis) and “Conversation Summary Add-Ons” (AI-generated summaries of user opinions), are designed to help brands connect more authentically with Reddit's highly engaged user base. By leveraging AI to enhance ad targeting and provide deeper insights into user sentiment, Reddit is positioning itself as a more attractive platform for advertisers seeking to reach niche communities.

Further bolstering investor confidence is Reddit's strong revenue forecast for the second quarter of 2025, projecting between $410 million and $430 million. This optimistic outlook is largely attributed to the company's expanding digital advertising business and its successful investments in ad technology.

CEO Steve Huffman has expressed confidence in the platform's growth trajectory, even amidst potential short-term headwinds from changes in Google's search algorithm. The company's ability to generate revenue from its vast user-generated content has long been a topic of discussion, and recent performance suggests that Reddit is finally finding its footing in the advertising space.

The partnership with OpenAI, announced in March 2025, has also contributed to the positive sentiment surrounding Reddit. The integration of Reddit's content into OpenAI's products, including ChatGPT, promises to enhance AI tools with the platform's extensive discussion forums. This collaboration not only provides Reddit users with new AI-powered features but also opens up new avenues for content monetization and data licensing. The initial announcement of the partnership triggered a significant increase in Reddit's stock price, highlighting the market's belief in the synergistic potential of this collaboration.

Despite these positive developments, analysts remain divided on Reddit's long-term prospects, citing concerns over Reddit's reliance on Google for user growth. They argue that the surge in Reddit's traffic following changes in Google's search algorithm may not be sustainable.

This highlights a key risk factor for Reddit: its dependence on external platforms for user acquisition. Should Google's algorithm change again, or should Reddit fail to diversify its user acquisition strategies, the company's growth could be significantly hampered.

Loop Capital have lowered their price target from $210 to $200 on Thursday, although retain a Buy rating. RBC Capital have also initiated coverage with a $125 price target and Sector Perform rating. The current average price target of $146.97 reflects a perceived upside of ~10% from current levels, although the high of $220, and low of $75 demonstrates the clear gulf in expectations on the street.

Markets, and traders, clearly liked the recent news, although question marks over value remain.