Reddit stock rallied Friday, regaining some ground after shares tumbled earlier this week.
Shares of the social media player gained nearly 5% in midday trades on the stock market today. Reddit stock lost more than 10% Wednesday after a third-party research report indicated that the hit generative AI bot ChatGPT was citing Reddit's user posts less frequently in responses. Reddit stock lost another 1% Thursday. The stock is still down 13% for the week.
In a note to clients late Thursday, Piper Sandler analyst Thomas Champion reiterated an overweight, or buy, call for Reddit with a 290 target price. Champion noted that ChatGPT is not a major source of traffic for Reddit, with users typically landing on the site either directly or through Google.
"If ChatGPT is somehow less reliant on Reddit, this refutes the idea that data licensing agreements will be re-upped for a higher rate," Champion wrote. "We understand why the stock is off. That said, we don't think anything has changed: Reddit content remains a potent asset for LLMs. Perhaps more importantly, the relationship (and traffic funnel) with Google seems intact. We expect a solid quarter and remain buyers of the stock."
Separately, Citizen JMP analyst Andrew Boone offered a bullish take as well in a late Thursday client note. He said concerns about Reddit's search-engine optimization are "simply noise." He said Reddit can continue driving stronger monetization of logged-in users rather than users that land on one of its forums from elsewhere.
"We are more focused on the momentum in the advertising business near term rather than logged-out users," Boone wrote. "With advertising macro stable and significant momentum in Reddit's advertising business today, we expect earnings to materially outperform near term."
Boone rates Reddit stock as outperform, or buy, with a 300 price target.
Reddit Stock's Recent Slide
Powered by a fast-growing advertising business and deals to license its data to AI developers, Reddit stock has soared nearly 500% from its IPO price in March 2024, powered by strong user growth.
But shares have pulled back by nearly 30% from an intraday record high of 282.95 on Sept. 18. Analysts have been debating whether Reddit can maintain its fast pace of user growth as Google shifts more of its search engine toward directly answering questions using AI. The report about ChatGPT earlier this week appeared to add to those concerns.
Still, Reddit stock's Relative Strength Rating remains a strong 97 out of a best-possible 99, showing its outperformance over the past 12 months.
And Reddit stock has an IBD Composite Rating of 94, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one rating. The best growth stocks have a Composite Rating of 90 to 99.
