Why Reddit Stock Soared Today

This is the second time in recent months that Reddit has scored a huge partnership.

Shares of social media company Reddit (RDDT 11.39%) soared on Friday after the company announced a partnership with Microsoft‘s OpenAI. As of 11 a.m. ET today, Reddit stock was up 14%.

What’s going on with Reddit and AI?

Most investors know OpenAI for its artificial-intelligence (AI) chatbot ChatGPT and for its strong ties to Microsoft. On May 16, OpenAI announced a partnership with Reddit, a company that just went public with an initial public offering (IPO) in March.

Many people think of chatbots as a new form of internet search — rather than use a search engine to go to a website, chatbots summarize online information into a succinct answer. ChatGPT will integrate information from Reddit’s user-generated content.

This isn’t the first time Reddit has packaged its data to grow its business. In February, it expanded its partnership with Alphabet‘s Google to help people find its content and communities. And thinking big picture, Reddit’s management believes that AI is a key to its long-term success.

Does this move the needle?

For OpenAI, I’m skeptical about the value of this partnership with Reddit. Many AI models get worse over time because the technology can’t discern between good input and bad input.

Since Reddit’s content is user-generated, there is guaranteed to be some bad input in there somewhere. I’m sure the smarter minds involved have already considered this, but it will be interesting to watch what they do about it.

I believe the partnership is more significant for Reddit. ChatGPT users will potentially discover content and communities, which could grow Reddit’s active user base. In the company’s first quarter of 2024, it added nearly 10 million daily active users. But over 60% were considered “logged out” users. In other words, they are coming to Reddit from internet search without an account.

According to management, Reddit’s upswing in logged-out user growth was driven by Google. It could see a similar boost from partnering with ChatGPT. And that’s big considering it makes most of its money from showing ads to people using its platform.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

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