Every stock is an AI story now, or so it seems. For Reddit (NYSE:RDDT) and its initial public offering (IPO) today, that’s at least part of the story driving shares of RDDT stock more than 45% higher in afternoon trading.
Priced at $34 per share yesterday (at the high end of the company’s initial range), Reddit went to market at a $6.4 billion market capitalization. Now trading around $47 per share, this company’s valuation has surged to more than $8.8 billion in a matter of hours.
Whether this stock is priced correctly or not will be determined by market forces. But what’s clear is that some investors are now pricing in clear artificial intelligence (AI) tailwinds into the stock.
Let’s dive into what investors are focusing on and whether Reddit could be the next big AI stock to watch.
Why Is RDDT Stock Surging on Its IPO Day?
The fact that some experts are jumping on the AI bandwagon with Reddit figures, as most companies have been talking incessantly about their innovative AI-related offerings and integrations in recent earnings calls. Today, co-founder and CEO Steve Huffman noted in an interview that his community platform could be the beneficiary of its data. Reddit is looking to monetize its user data by, among other avenues, feeding its data to large language models.
Reddit has struck a deal with Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) to “make its content available for training the search engine giant’s artificial intelligence models.” Given the range of discussions taking place on Reddit, such data could certainly be valuable, particularly in understanding how humans have discussions around key issues.
This deal is expected to net Reddit around $60 million per year, aiding the company in its goal of becoming profitable in short order. Losses have plagued the company in its 19 years as a private entity, and many bears (including some on the WallStreetBets community) have cited a lack of profitability and executive compensation as reasons to short the stock. However, Huffman has pushed back on the former concern.
For now, Reddit appears to be more of an AI play than a short opportunity, at least in the eyes of the market. Indeed, this will remain a key stock to watch in the coming days, and I will certainly provide updates as they arise.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
