In This Article:
Key Points
-
An analyst tracking the stock made a double-digit cut to his price target.
-
He also left his rather lukewarm "neutral" recommendation unchanged.
One of the more up-and-coming social media stocks in recent times, Reddit (NYSE: RDDT), went down quite a bit on Wednesday. Investors traded assertively out of the stock following an analyst's price-target cut, to the point where it closed the day more than 9% in the red. That was a far steeper fall than the S&P 500 index's 1.6% decline.
The threat of AI
That pundit was Baird's Colin Sebastian, and before market open he changed his Reddit fair-value assessment to $120 per share, well down from his previous $140. Despite the double-digit adjustment, he left his "neutral" recommendation on the shares unchanged.
The analyst's move, according to reports, was largely due to concerns about artificial intelligence (AI) capabilities being harnessed by tech titans such as Alphabet. Not long ago, that company's core Google unit rolled out AI responses to standard search queries, and it plans to continue beefing up its AI enhancements.
To Sebastian, this is a threat to Reddit's user growth, as it can obviate the need for discussion with other users -- the bread and butter of Reddit's business -- in order to obtain an answer. Mitigating this to a degree, the pundit wrote, is a data-licensing agreement in place between Reddit and Google.
There's no substitute for the real thing
While that's a legitimate source of concern for Reddit investors, I don't feel it's quite a deal-breaker. We still have quite a distance to go before AI functionalities can even come close to mimicking genuine and organic human reactions, so Reddit's forum-style presentation should continue to be popular.
It should also keep attracting new users, adding to Reddit's base -- and providing a foundation for more double-digit percentage growth in fundamentals like revenue and profitability.
Should you invest $1,000 in Reddit right now?
Before you buy stock in Reddit, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Reddit wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $642,582!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $829,879!*
Now, it’s worth noting Stock Advisor’s total average return is 975% — a market-crushing outperformance compared to 172% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.