Why Reddit Stock Was Falling This Week: Navigating Volatility in the AI-Driven Social Media Landscape

The week of May 15–22, 2025, saw Reddit’s stock (NYSE: RDDT) plummet by over 11%, driven by a perfect storm of analyst downgrades, macroeconomic fears, and existential threats from Google’s AI advancements. Yet beneath the short-term turbulence lies a company with a compelling growth story and structural advantages that could position it for long-term dominance in the AI-powered social media era. For investors willing to look past the noise, this volatility creates a rare buying opportunity.
The Short-Term Sell-Off: Downgrades and Disruption
The decline began on May 15, when Wells Fargo downgraded Reddit to “Equal Weight” from “Overweight,” slashing its price target to $115 from $168. Analyst Ken Gawrelski argued that Google’s AI-powered search tools were permanently disrupting Reddit’s traffic, particularly from “logged-out” users—55% of its user base but only 15% of ad revenue. This downgrade triggered an immediate 5% drop, pulling the stock to $108.
By May 17, broader market fears compounded the pain. Rising Treasury yields and recession concerns sent growth stocks reeling, with Reddit falling a further 9.3% in a single day. The sell-off reflected not just Reddit’s struggles but a broader skepticism toward high-growth tech companies in a slowing economy.

The Long-Term Case for Reddit: Fundamentals and AI Resilience
While the near-term risks are real, Reddit’s underlying fundamentals remain robust:
- Revenue Growth:
- Reddit reported 64.1% YoY revenue growth in Q1 2025, driven by a 61% surge in ad revenue to $358.6 million.
- International expansion is booming, with non-U.S. revenue up 82% YoY, underscoring untapped global potential.
- User Metrics:
Daily Active Users (DAUs) grew by 6.4 million in Q1, reaching 218 million. This reflects Reddit’s ability to retain its core community while attracting new audiences.
AI-Driven Innovation:
- Reddit Answers: The company’s AI-powered search tool, launched in Q1, directly counters Google’s threat by enabling users to find niche content faster. Early metrics show strong engagement, with adoption rates exceeding expectations.
Content Monetization: Reddit’s unique “corpus” of user-generated content is a moat against AI chatbots, which lack the authenticity of human-driven discussions.
Analyst Consensus:
- Despite the downgrade, 10 of 15 analysts still rate Reddit a “Buy”, with an average price target of $150.35—a 47% upside from recent lows. Bulls emphasize Reddit’s $60 million annual data licensing deal with Google (which, while controversial, provides a high-margin revenue stream) and its potential to monetize AI-generated insights.
Why the Google Threat Isn’t Terminal
While Google’s AI tools are a near-term headwind, Reddit’s model is uniquely resilient:
- Community vs. AI: Users seek Reddit for authentic, human-driven advice, not algorithmic summaries. This “trust premium” makes Reddit sticky, even as Google’s AI encroaches on traffic.
- Data Licensing Nuance: The $60 million deal provides Google with data to refine its AI, but Reddit retains control over its content. Over time, this could evolve into a strategic partnership, not a zero-sum game.
The Contrarian Play: Buy the Dip, Own the Future
Reddit’s stock now trades at a P/E of 163, down sharply from its 52-week high but still premium to peers like Meta (P/E 30). This valuation reflects skepticism about its growth trajectory—but also leaves room for upside if Reddit delivers on its AI roadmap and user retention.
Investors should focus on three catalysts:
1. Reddit Answers Adoption: Scaling this tool could stabilize ad revenue and even attract new users.
2. International Expansion: Markets like India and Southeast Asia offer low-penetration growth opportunities.
3. Earnings Guidance: A Q2 report showing DAU stability or ad revenue resilience could reverse the downgrade narrative.
Final Call: This Is a Buy Signal
Reddit’s recent decline is a function of short-term fears, not a death knell. With a “GOOD” financial health score (2.84/5), strong cash flow, and a product pipeline that addresses its biggest threats, this is a company primed to rebound. The Wells Fargo downgrade may have been justified in the near term, but the broader market overreacted.
For investors with a 3–5 year horizon, Reddit’s current dip offers a chance to buy a $150+ stock at $108—a 29% discount to consensus targets. The risks are clear, but the reward is even clearer. Act now before the narrative shifts.
Note: Past performance does not guarantee future results. Always conduct your own research and consult a financial advisor.
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