Wells Fargo’s updated framework highlights Reddit’s data as well-positioned for the shift toward AI inference and agentic applications.
- While constructive on the revenue potential from renewed deals, Fargo remains skeptical that Alphabet and OpenAI will offer meaningful additional traffic referrals back to Reddit’s platform.
- Reddit’s deals with both Google and OpenAI are slated for renewal this year.
- In 2025, Reddit’s content licensing deals with OpenAI and Google accounted for approximately $140 million in revenue, compared to the firm’s $2.2 billion total revenue.
Wells Fargo analysts are turning more constructive on the impending renewals of Reddit’s (RDDT) high-profile content licensing agreements with Google parent Alphabet and OpenAI, forecasting that combined annual revenue from the deals could surge to $550 million upon renegotiation—more than quadrupling the current run rate of roughly $130 million.
Shares of the company, however, fell 6% on Friday, clocking its worst day since late April, and fell a further 3% after hours after the stock was not included in the S&P 500 index despite speculation otherwise. Marvell Technology Inc (MRVL) and Flex Ltd (FLEX) were added to the index instead.
Reddit Well Positioned For Shift Toward AI Inference, Says Wells Fargo
Fargo’s updated framework highlights Reddit’s data as well-positioned for the shift toward AI inference and agentic applications. Yet Wells Fargo also flags a significant downside: the licensing pacts have emerged as a “substantial headwind” to user growth. Daily active user (DAU) growth on Reddit’s app has decelerated since the OpenAI deal was announced in May 2024, the firm said. Without the content being funneled into large language models, Reddit’s user metrics and stock valuation multiple “would be meaningfully higher,” analysts contended.
The pressure from AI licensing is estimated to create a roughly $16 billion “overhang” on Reddit’s enterprise value, according to Wells Fargo. While constructive on the revenue potential from renewed deals, the bank remains skeptical that Alphabet and OpenAI will offer meaningful additional traffic referrals back to Reddit’s platform. It maintained an ‘Equal Weight’ rating on Reddit with a $176 price target.
Why AI Deal Renewals Matter
In February 2024, Reddit struck a multiyear pact with Google worth approximately $60 million annually, granting the search giant access to Reddit’s Data API for real-time, structured user-generated content to train AI models and enhance search features.
Three months later, in May 2024, Reddit announced a similar partnership with OpenAI—valued at an estimated $70 million per year—allowing ChatGPT and future products to surface enhanced Reddit content while giving OpenAI ongoing API access. The deals are now due for renewal in 2026.
In 2025, Reddit’s content licensing deals with OpenAI and Google accounted for approximately $140 million in revenue, compared to the firm’s $2.2 billion total revenue. A whopping majority of the company’s revenue continues to be from advertising.
In 2024, the two deals accounted for about 10% of the company’s overall revenue.
Loop Capital Has More Bullish Take
On Wednesday, Loop Capital reiterated its ‘Buy’ rating on Reddit and $260 price target. Analyst Rob Sanderson pointed to the company’s robust revenue momentum and “multiple drivers in place for a lengthy expansion.” At a current multiple of roughly 25 times expected 2027 earnings, the stock “looks particularly attractive,” the firm added.
According to data from Koyfin, 21 of the 32 analysts covering Reddit rate it ‘Buy’ or higher, while 10 rate it Hold, and one rates it Sell. The 12-month average price target on the stock is $224.92, representing a potential upside of about 30% from the last close.
How Did RDDT Retail Traders React?
On Stocktwits, retail sentiment around RDDT stayed within the ‘neutral’ territory over the past week, while message volume jumped from ‘low’ to ‘normal’ levels.
Stocktwits users were speculating that Reddit would be included in the S&P 500 index on Friday and expressed disappointment that it wasn’t.
RDDT stock has fallen 28% this year despite strong revenue growth, owing to softer logged-in user growth.
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