How AI interest in Reddit's user data has helped send its stock soaring

By James Rogers

The social-media website's stock continues to attract investor interest after its closely watched IPO last week

As Reddit Inc. shares soared on Monday to end their third day of trading up 30%, the stock is seeing heightened interest and improved sentiment from retail investors in the wake of its initial public offering last week, according to stock-market-focused social-media platform Stocktwits.

Tom Bruni, head of market research at Stocktwits, told MarketWatch on Monday that sentiment around Reddit was in "extremely bearish" territory prior to its IPO. That dynamic continued into its second day of trading Friday, when the stocked ended down 8.8%.

"However, one bullish thesis we see prevalent on [Stocktwits] is that the age of AI/LLMs [large-language models] has made Reddit data more valuable and gives the company a high-margin revenue stream (see their $60 million deal with Google)," Bruni wrote.

Invest in what you know: Reddit moderator who saw meme-stock craze is buying into platform's IPO

Reddit has been touting the importance of artificial intelligence to its future, noting that its content could be used to feed AI and large-language models.

"This afternoon we finally saw sentiment tick into bullish territory for the first time, though message volume remains pretty normal," Bruni noted. "Overall, there's real interest in the stock with over 10,000 people following it on our platform. And with a lot of eyeballs watching, if this stock does get going to the upside, there will be plenty of people ready to hop on the momentum train (regardless of how they feel about the underlying business)."

Related: Reddit could use this strategy to 'monetize aggressively' following its IPO

Prior to the offering, there were concerns that Reddit's (RDDT) stock could experience volatility in the wake of its public-market debut. "A lot of this post-IPO volatility can be chalked up to the price-discovery process, but retail remains mixed on its outlook of the stock so far," said Bruni.

In the run up to its IPO, there were also concerns that Reddit could find itself at odds with its loyal user base as it strives for profitability, a sentiment echoed by Bruni. In particular, he highlighted the "core conflict" around how Reddit will balance the experiences and wants of its users with the demands of advertisers and the company's broader business relationships.

"Oftentimes, the things that can generate revenue for the business are at odds with how users interact with the platform," he told MarketWatch. "Last year, we saw a bit of that discourse between users/management, with thousands of subreddits going dark to protest Reddit charging third-party apps for API access."

"Ultimately, the business won out and users found they didn't have as much power to influence the company's decision as they thought," Bruni added. "Also, some users who were offered IPO stock chose not to take it, highlighting an underlying lack of trust in the platform/business from at least some retail investors."

Related: Why Reddit's IPO could offer an 'unprecedented' twist in meme-stock saga

Reddit invited users and moderators who have contributed to its social-media platform to buy shares in its IPO. The company did not immediately respond to a request for comment on this story.

Elsewhere around the market, it's also worth keeping an eye on videogame retailer and original meme stock GameStop Corp. (GME) ahead of the company's fourth-quarter results this week, according to Bruni. "With Reddit running and the market at all-time highs, many traders are putting traditional 'meme stocks' back on their radar," he said.

GameStop shares ended Monday's session up 15.4%. The company reports fourth-quarter results after market close Tuesday.

-James Rogers

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03-25-24 1842ET

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