Reddit's Stock Plunges as AI Wars and Fraud Allegations Collide: Investors, Take Cover!

The markets are in a tizzy over Reddit (NYSE: RDDT), and for good reason. This once-hot social media darling is now at the center of a securities fraud investigation, its stock cratering after investors learned the truth about Google's AI-driven search advancements crippling its user growth. Let's break down the chaos—and what you need to do if you're holding this stock.

The AI Tsunami Hitting Reddit's User Growth

Reddit's problem isn't just about a lawsuit—it's a wake-up call for tech investors. The company has long relied on Google traffic: people searching for answers online would click through to Reddit's communities for discussions. But here's the bombshell: Google's AI now answers questions directly in search results, cutting out Reddit entirely.

The investigation alleges Reddit lied to investors, insisting until May 2025 that this shift had “no material impact” on user growth. But when analysts at Baird called out the truth on May 21, the stock tanked. Why? Because the reality is stark: . While Google's stock held steady, Reddit's free-fell as the AI arms race exposed its fragile business model.

Fraud Allegations: What's at Stake for Investors?

Law firms like Bleichmar Fonti & Auld (BFA) are now leading a class-action lawsuit against Reddit, targeting investors who bought shares between October 29, 2024, and May 20, 2025. That's a critical window—anyone holding RDDT during this period could be eligible for compensation if the case succeeds.

But here's the rub: BFA's past wins (like $900M from Tesla and $420M from Teva) show they're no slouches. However, this case hinges on proving Reddit knew about the AI threat but misled investors. If you're in this class period, act fast: contact BFA or Shamis & Gentile to join the lawsuit. Delays could lock you out.

Should You Buy the Dip? Or Run Like Hell?

Reddit's stock is down, but is this a buying opportunity or a trap? Let's crunch the numbers:

• User Growth is Dead? If Google's AI keeps siphoning traffic, Reddit's core engine—community-driven content—loses its fuel.
• Competitor Moves: Facebook and TikTok are also weaponizing AI to keep users in their ecosystems, leaving Reddit in a shrinking niche.
• Financials Stink: Q4 2024 and Q1 2025 reports showed operational inefficiencies and stagnant growth—red flags long before the AI bomb dropped.

Cramer's Call: Avoid RDDT unless you're a long-term contrarian. This isn't a “wait it out” stock. The AI threat is existential, and the fraud allegations could drag the company into years of litigation. Short-term traders? Stay away. Long-term? Only bet here if you believe Reddit can pivot to AI better than Google—a tall order.

The Bottom Line: Trust No One, Especially in Tech

This isn't just about Reddit—it's a cautionary tale. Tech stocks are now battlegrounds for AI dominance, and companies that can't adapt (or lie about it) will get crushed. Always ask: Who's stealing their users? And Are they hiding the truth?

Investors: If you're in this lawsuit's class period, fight for your money. If not? Let Reddit's AI-induced carnage be a lesson—don't underestimate the disruptor's edge.

Stay vigilant, folks. The markets don't forgive hubris.

Disclaimer: Past performance ≠ future results. Consult a financial advisor before acting on this analysis.