Reddit, Inc. (NYSE:RDDT) experienced a significant surge on Wednesday, with shares climbing 13.7% to close at $197.42. This rally added approximately $4.6 billion to the company's market capitalization, which now stands at roughly $38.01 billion, according to MarketBeat. The sharp increase in stock price was accompanied by robust call option activity, which came in 45% above its usual volume, indicating strong investor interest.
The stock's upward movement is largely attributed to a new artificial intelligence data licensing deal, although the company has not yet booked any revenue from this agreement. Reddit's most recent quarterly filing revealed $120.6 million in performance obligations tied primarily to long-term content licensing contracts that extend beyond a year. However, the current market valuation hinges on the potential for future AI data licensing renewals rather than on already signed contracts. If these new licensing deals fail to materialize at higher values, investors may be paying a premium for what remains primarily a high-growth advertising business.
Reddit shares traded at $196.10 in pre-market activity on Thursday, according to Google Finance. The NYSE will be closed on Friday, July 3, in observance of the Independence Day holiday.
Market Context and Sector Performance
The broader market presented a mixed picture on Wednesday. The Nasdaq Composite fell 0.66%, while the S&P 500 declined 0.22%. In contrast, the semiconductor index dropped sharply by 6.3%. Meta Platforms (NASDAQ:META) bucked the trend, jumping 8.8% following reports that it is developing a cloud unit to sell unused AI computing capacity. This positive move for Meta also provided a tailwind for Reddit, as both companies are seen as beneficiaries of the AI boom.
Financial Highlights and Revenue Breakdown
Reddit's first-quarter 2026 results, released in April, showed total revenue of $663.4 million, a 69% increase from $392.4 million in the same period last year. Advertising revenue was the primary driver, rising 74% to $624.7 million. Other revenue, which includes content licensing and direct-to-user product sales, grew 15% to $38.7 million. The company noted that revenue from direct user products was not material for the reported periods. Daily active users (DAUq) increased 17% to 126.8 million, while global average revenue per user (ARPU) rose 44% to $5.23.
CEO Steve Huffman described Reddit as a "one-of-one business" that relies on human conversation and community, giving it a "unique advantage in the age of AI." This sentiment was echoed by Needham analyst Laura Martin, who maintained a Buy rating and a $300 price target, stating that "human authentication is a mission-critical layer for LLMs."
AI Licensing Deals and Risks
Reddit has entered into data licensing agreements with major AI players. OpenAI announced in 2024 that it would use Reddit's Data API to access real-time and structured data, and also become an advertising partner. Similarly, Google (NASDAQ:GOOGL) has a deal with Reddit for Data API access, reportedly valued at about $60 million per year. However, Reddit has cautioned that it is still in the early stages of content licensing, describing the market as nascent. Almost all licensing revenue is currently tied to just two partners, and the company has warned that these contracts may not be renewed or could be renewed on less favorable terms.
For the second quarter of 2026, Reddit has provided revenue guidance in the range of $715 million to $725 million, with adjusted EBITDA expected between $285 million and $295 million. As trading resumes on Thursday, the focus will be on whether investors continue to bid up the stock based on future licensing revenue, which remains a small component of the overall business compared to advertising.
