Reddit (NYSE: RDDT) soars as AI machines hunt for human input

Reddit (NYSE: RDDT)—a popular social platform known for longer-form discussion that stands in stark contrast to the brevity of discourse on rival networks including X—just got a major upvote, with its shares soaring after the firm once known as an obscure corner of the Internet reported its first quarterly profit as a public company. While its user base and advertising revenue are both rising, investors are also salivating at what could emerge as an even more profitable product: human-created content.

“The source of artificial intelligence is actual intelligence, which is what you find on Reddit,” co-founder and CEO Steve Huffman told the Wall Street Journal last month when asked about the way content on the platform can be used to train the large language models at the center of the current AI boom. He referenced ongoing partnerships with OpenAI and Google (NASDAQ: GOOGL) before mentioning that the company wanted to be sure that it wasn’t “just giving away the value of Reddit to the largest companies in the world.”

The value proposition is simple: companies rushing to train newer, more powerful models need large amounts of data that is becoming increasingly harder to find as much existing knowledge has already been swept up and processed. Academics from the UK and Canada detailed the so-called “model collapse” that can occur when AI starts to train on content produced by AI, just the way holding a microphone up to the speaker it’s connected to will result in a screeching feedback loop.

“The value of data collected about genuine human interactions with systems will be increasingly valuable in the presence of content generated by LLMs in data crawled from the Internet,” the authors wrote in a journal article published at arXiv, demonstrating just how valuable Reddit—the platform where as many as 100 million daily active humans discuss everything from current events to cooking recipes—will be as developers search for new inputs. Another academic study published earlier this year found that the available stock of unreviewed, human-generated material could run out by 2026.

That’s all good news for Reddit, which reported that revenue from data licensing deals rose a staggering 547% in the third quarter, far outpacing the speed at which advertising sales are growing. In a call with investors last week, Reddit COO Jennifer Wong said the “training folks” the company is talking with have been specifically interested in the “freshness” of its data. She also noted increasing work with social intelligence companies that can access an API and then use AI to uncover marketing insights and industry trends.

Reddit shares have surged as the market starts to see the bigger picture, rising nearly 51% over the last month while the S&P 500 lost nearly 1%. The company reported that overall revenue—which was up 68% in the third quarter from the same period last year—helped it obtain a profit of nearly $30 million. Amid efforts to use machine translation to attract more overseas users, daily active unique users rose 47%. In a fresh challenge to an X, meanwhile, Reddit highlighted the expanding use of its Reddit Pro platform by businesses and institutions like the White House to share official information with the public. 

Showing just how much power Reddit thinks it has vis-à-vis the AI companies hungry for unread words to feed its machines, CEO Huffman has no qualms about cutting off anyone who doesn’t pay. It’s a potential move that would track with research that shows other content owners are increasingly restricting access to what’s becoming a new type of digital gold. 

“Our general principle is we’re open and open for business, but it needs to be on terms that work for us, our business and our users,” he told investors. “So we’re kind of working through each of those. But as you’ve also seen, we’re not afraid to block people or cut people off if we don’t think we’re going to come to terms there.”

Reddit’s biggest asset has always been that it’s remained fundamentally human in a sea of algorithms, and it’s somewhat paradoxical that an AI revolution is now supercharging its value proposition preciously for that reason. If the platform can keep its users engaged and typing on their keyboards, it could shine as an oasis of free thought for both humans and machines, protected from the shadow of a rising virtual Tower of Babel.