Why Reddit Stock Soared Today
Shares of social media company Reddit (NYSE: RDDT) soared on Friday after the company announced a partnership with Microsoft's OpenAI. As of 11 a.m. ET today, Reddit stock was up 14%.
What's going on with Reddit and AI?
Most investors know OpenAI for its artificial-intelligence (AI) chatbot ChatGPT and for its strong ties to Microsoft. On May 16, OpenAI announced a partnership with Reddit, a company that just went public with an initial public offering (IPO) in March.
Many people think of chatbots as a new form of internet search -- rather than use a search engine to go to a website, chatbots summarize online information into a succinct answer. ChatGPT will integrate information from Reddit's user-generated content.
This isn't the first time Reddit has packaged its data to grow its business. In February, it expanded its partnership with Alphabet's Google to help people find its content and communities. And thinking big picture, Reddit's management believes that AI is a key to its long-term success.
Does this move the needle?
For OpenAI, I'm skeptical about the value of this partnership with Reddit. Many AI models get worse over time because the technology can't discern between good input and bad input.
Since Reddit's content is user-generated, there is guaranteed to be some bad input in there somewhere. I'm sure the smarter minds involved have already considered this, but it will be interesting to watch what they do about it.
I believe the partnership is more significant for Reddit. ChatGPT users will potentially discover content and communities, which could grow Reddit's active user base. In the company's first quarter of 2024, it added nearly 10 million daily active users. But over 60% were considered "logged out" users. In other words, they are coming to Reddit from internet search without an account.
According to management, Reddit's upswing in logged-out user growth was driven by Google. It could see a similar boost from partnering with ChatGPT. And that's big considering it makes most of its money from showing ads to people using its platform.
Should you invest $1,000 in Reddit right now?
Before you buy stock in Reddit, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Reddit wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $578,143!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 13, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
