Anthony Lee
3 min read
What Happened?
Shares of online community and discussion platform Reddit (NYSE:RDDT) fell 5.9% in the pre-market session after reports revealed the company is reconsidering its AI data-licensing agreement with Google.
The Wall Street Journal reported that Reddit executives are reevaluating their $60 million-a-year licensing deal with Google, which was signed in 2024. While the agreement allows Google to train its models on Reddit’s vast library of human-generated content, the integration of Google’s “AI Overviews” has complicated the relationship, as it hurts Reddit’s core business by answering user queries directly on the search page, reducing click-through traffic to the platform.
As the two companies enter a standoff over contract renewals, investors grew anxious about the potential loss of this high-margin AI revenue stream. While Reddit depends on Google for traffic, the leverage doesn’t just lie with the search giant. Reddit’s vast repository of human content, which boasts high trust among consumers and high commercial intent that is coveted by advertisers, is increasingly valuable for AI training in world increasingly dominated by AI-generated content (aka “slop”).
Google is further incentivized to sign a deal with Reddit to keep Reddit’s data out of the hands of key competitors also looking to train their AI models.
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What Is The Market Telling Us
Reddit’s shares are extremely volatile and have had 52 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago when the stock dropped 3.8% on the news that tech stocks pulled back as profit-taking overshadowed a bullish rating from Wedbush. Fundamental news was decidedly positive. Wedbush analyst Ygal Arounian gave an Outperform rating and a $250 price target, naming Reddit a top mid-cap internet pick due to its community engagement and AI monetization potential.
However, the stock moved in the opposite direction, caught in a wider de-risking of AI-linked equities triggered by TSMC’s latest results. While TSMC confirmed AI demand remains robust, the chipmaker significantly raised its capital expenditure guidance to $60–$64 billion and warned of margin dilution. This capex reset signaled that scaling AI capacity will be exceptionally expensive, forcing a multiple de-rating across the tech sector as investors question whether downstream software and data monetization can ultimately justify these massive hardware costs.
Because Reddit has rallied recently as a high-multiple AI derivative, driven by its own data-licensing deals, it is sensitive to this valuation debate. Against a backdrop of escalating Middle East tensions, active traders likely used the bullish Wedbush rating update as an opportunity to lock in recent gains rather than buy the news ahead of Reddit’s upcoming earnings.
