Reddit Stock Soars 13% Following OpenAI Partnership Announcement, Nears Record High

By John Lopez

May 17 2024, 14:23 PM EDT

On Friday, May 17, Reddit shares surged 13% after the social media platform announced a strategic partnership with artificial intelligence firm OpenAI.

Reuters reports that this collaboration is expected to significantly boost Reddit's advertising revenue significantly, pushing the stock price to $63.64, just shy of its all-time high of $65.11 set in late March.

This increase in stock price places Reddit on track to add approximately $1.2 billion to its market capitalization.

Reddit's Partnership with OpenAI

The partnership, unveiled on Thursday, May 16, will see Reddit using OpenAI's cutting-edge technology to develop new tools and features.

Specifically, OpenAI's ChatGPT platform will integrate Reddit's content in a real-time, structured manner, enhancing the user experience by bringing timely and relevant information to the forefront.

Additionally, OpenAI will become Reddit's advertising partner, further expanding its revenue streams.

Dow Jones Industrials Average Closes Day 477 Points Up — NEW YORK, NEW YORK - MARCH 27: The Reddit company logo is seen displayed as raders work on the floor of the New York Stock Exchange during afternoon trading on March 27, 2024 in New York City. Stocks closed out high with the Dow Jones leading closing over 400 points and is on pace to end March with its fifth straight positive month, the longest streak since August 2020 and the S&P snapping a three day streak of losses. Photo by Michael M. Santiago/Getty Images)

More Revenue Streams for Reddit

Top analysts predict this new deal could generate millions per year for Reddit. According to a filing, Reddit is pushing for additional revenue streams beyond advertising, such as offering creator tools and sharing data.

More than half of analysts recommend buying Reddit stock, with a median price target of $63, citing its strong performance since going public at $34 per share.

The OpenAI deal aligns with Reddit's plan to use AI more, fulfilling a promise made during its IPO. With existing data deals expected to generate at least $66.4 million this year, Reddit is serious about monetizing its data.

Controversy

However, the partnership is not without controversy. OpenAI has been embroiled in several lawsuits from newspapers and authors alleging unauthorized use of content to train its language models.

Despite these legal challenges, OpenAI has secured content licensing deals with notable publishers, including the Financial Times and Associated Press.

Both companies are optimistic about the potential benefits. "We are thrilled to partner with Reddit to enhance ChatGPT with uniquely timely and relevant information," said Brad Lightcap, OpenAI's COO.

Steve Huffman, Reddit's co-founder and CEO, echoed this sentiment, emphasizing the value of including Reddit content in ChatGPT to foster a connected internet and help users find communities on Reddit.