Reddit stock falls on Google AI search concerns

Reddit's stock experienced significant declines over a period of weeks, driven by investor concerns about its relationship with Alphabet Inc.. Reports indicated that Reddit was reconsidering its $60 million-per-year AI data-licensing agreement with Alphabet Inc., which allows Alphabet Inc. to train its models on Reddit's content. The integration of Alphabet Inc.'s AI Overviews, which answer user queries directly on search pages, has reduced click-through traffic to Reddit, threatening its core business. Additionally, CEO Steve Huffman noted that search referrals had become 'choppy' during the second quarter, further fueling anxiety. Despite strong Q2 earnings with revenue of $804.9 million (up 61.1% year-over-year) and better-than-expected guidance, the stock fell sharply. The market also reacted to broader tech sector de-risking triggered by TSMC's raised capital expenditure guidance, which raised concerns about AI monetization. Reddit's stock dropped 23.2% in one session and was down over 40% from the beginning of the year at one point. The company is also in negotiations to convert its 2027 licensing renewals with Alphabet Inc. and OpenAI from flat fees to usage-based dynamic pricing, which could significantly increase revenue.