Reddit stock jumps after launching new AI ad tools

Reddit (RDDT) stock rose 8% in late morning trading on Tuesday following the social media platform’s release of new AI ad tools at the Cannes Lions festival the prior day.

Reddit’s new tool, called “Reddit Community Intelligence,” allows marketers to use Reddit posts to identify trends for ad campaigns and integrate Reddit users’ comments into their ads.

While Reddit shares climbed, the S&P 500 (^GSPC) fell fractionally. Reddit stock had risen as much as 15.8% earlier in the trading session.

The gain follows Reddit’s 6.8% jump Monday, after media reports spotlighted a recent analysis from data analytics firm Semrush, showing that Reddit is the second-most-cited website in Google AI overviews (GOOG).

The analysis said that Reddit may perform well on Google due to its $60 million deal with the tech giant, allowing Google to use Reddit users’ posts to train its AI.

Despite Reddit stock’s climb this week, shares are still down nearly 16% for the year and far below their high of over $230 in February. The social media stock has suffered as changes to Google’s Search algorithm have spurred ongoing concerns among investors over its user traffic. Google accounts for 40% to 50% of Reddit’s traffic, according to JPMorgan analyst Doug Anmuth.

In February, Reddit stock fell more than 20% in the week following its fourth quarter earnings, which missed Wall Street’s expectations due to a change in Google’s Search algorithm. Daily active users and earnings missed analysts’ projections.

And the day after Reddit’s first quarter earnings report in May, shares fell more than 4% after executives said further changes to Google Search’s algorithm could create volatility in its traffic.

“This is expected in any year, but given that the search ecosystem is under heavy construction, the near term could be more bumpy than usual,” CEO Steve Huffman told investors in a post-earnings call in May.

The company, in which OpenAI’s (OPAI.PVT) Sam Altman is a major investor, went public last March in one of 2024’s hottest IPOs and recorded its first profit shortly after.