Reddit Under Threat? Analyst Flags Google AI Search as Potential “End”

Wall Street analysts are sounding the alarm on Reddit (RDDT), with one Wells Fargo analyst downgrading the stock due to concerns about Google’s burgeoning AI search capabilities.

AI Search: A Red Flag for Reddit’s Growth?

The core worry? Google’s aggressive push into AI-powered search tools. These tools, offering summarized answers directly within search results, could make platforms like Reddit redundant. According to Wells Fargo, this shift could significantly impact Reddit’s user acquisition and, crucially, its advertising revenue.

The Logged-Out User Dilemma

Reddit thrives on its logged-out user base, who contribute a significant portion of its traffic, even if they only account for around 15% of direct ad revenue. However, this group represents roughly half of Reddit’s total user base. The analyst believes Google’s AI advancements specifically threaten this segment.

Advertising remains Reddit’s primary revenue source. In Q1, ad revenue reached $358.6 million, a substantial 61% year-over-year increase, against total revenue of $392.4 million. The anticipated decline in logged-out users has prompted Wells Fargo to revise its 2026 and 2027 ad revenue forecasts downward by 6% and 14%, respectively.

E-A-T Standards and Organic Traffic

Beyond AI Overviews, Google’s heightened emphasis on E-A-T (Expertise, Authoritativeness, Trustworthiness) standards in its search algorithm presents another challenge for Reddit. The anonymity of many Reddit posters makes it difficult to meet these standards, potentially jeopardizing Reddit’s visibility in search results.

Reddit’s Countermeasures: “Reddit Answers”

Reddit isn’t standing still. The company is actively developing its own AI-powered search, dubbed “Reddit Answers,” aiming to keep users within its ecosystem. However, the proliferation of AI-generated content and bots poses a unique threat to maintaining genuine human interaction on the platform.

The Data Licensing Paradox

Ironically, Reddit’s data licensing agreement with Google, estimated at around $60 million annually, also presents a double-edged sword. While it diversifies Reddit’s revenue, it simultaneously provides Google with valuable data to further enhance its AI search capabilities.

Despite these challenges, Reddit continues to experience growth in Daily Active Users (DAUs). The company’s future hinges on sustaining this growth and maximizing revenue per user.

Wall Street’s Divided Opinion

While Wells Fargo has adopted a cautious stance, other analysts remain optimistic. Citi, for example, maintains a Buy rating on RDDT, citing strong Q1 performance and new features like Reddit Answers. Seaport Research also sees Reddit as a “long-term opportunity,” emphasizing its potential to grow DAUs and monetize its user base.

Reddit’s High Valuation

It’s worth noting that Reddit’s stock currently trades at a high price-to-earnings (P/E) ratio of 163, significantly higher than Meta Platform’s (META). This premium valuation means investors are expecting substantial future growth and profitability.

The Verdict: Proceed with Caution?

The integration of AI into search is undeniably reshaping the online landscape, posing potential headwinds for Reddit. While Reddit is taking steps to adapt, the combination of a premium stock valuation and the evolving dynamics of Google search warrants careful consideration for investors.

Ultimately, Reddit’s ability to navigate these challenges and capitalize on its strengths will determine its long-term viability in an increasingly AI-driven world.