Reddit stock is surging thanks to the S&P 500, but it hasn't solved its big dilemma

Reddit (RDDT), which went public in 2024, has positioned itself as a source of authentic human content for data-hungry artificial-intelligence models. Through lucrative licensing deals, it aims to remain both a community hub and a training ground for machines. The company will join the S&P 500 next week, prompting a double-digit gain as index-tracking fund managers adjust their portfolios after a difficult year. Shares closed at $178.09 on August 14, up $19.97, or 12.63%, at 4:04:08 p.m. EDT. The central investment question remains unresolved: which parts of Reddit’s strategy reinforce one another, and which are in conflict? Combining large-language-model partnerships with advertising has diversified revenue and positioned Reddit as an unusual AI participant. Yet more than 90% of revenue still comes from advertising, creating substantial risk if licensing activity diminishes the value of that legacy business. Roelof van Zwol, executive vice president of monetization, told Digiday in Cannes that how much AI deals might consume Reddit’s advertising business is “definitely something that we're intensely debating.” Wall Street has signaled its concern. When Reddit ran out of AI licensing deals to announce, the stock fell double digits year to date, even as advertising revenue continued to expand. Investors are also monitoring the company’s efforts to increase its user base and marketing influence. The strategic tension is substantial. Reddit wants to be a refuge from synthetic garbage and regurgitated summaries, but selling its discussions to improve AI bots could help create substitutes for the human forums that underpin its value. The prospect of bots talking to bots across the internet, potentially including Reddit, adds to that risk. Conversely, Reddit could achieve its goal of 1 billion users if people increasingly seek the eccentricity and humanity of “the heart of the internet.” Another licensing deal could also lift the stock, much as a new model or chip can benefit AI companies. Wall Street wants more AI dealmaking, but a growing advertising machine remains the next-best outcome. The bots may not be real, but the money is.