Reddit: RDDT slumps 3.6% lower on week despite Friday gains

Reddit stock gains as NFP March print shows strong hiring.
US tech stocks gain as employment report shows 303K net hires, above 200K consensus.
Baird gives RDDT stock a Neutral rating, $50 price target.
Reddit stock needs to trade above $51 resistance level in order to gain steam.

Reddit (RDDT) stock gained 3.9% to $47.58 on Friday in the aftermath of the US Labor Department’s Nonfarm Payrolls (NFP) report for March. The report estimated that the economy increased the nation’s payrolls by 303K jobs, which was a major surprise compared with the 200K expected.

Most tech and Magnificent Seven stocks gained, pushing indices higher, while banks and real estate companies yearning for interest rate cuts saw their share prices compress. The NASDAQ added 1.2%, while the S&P 500 tacked on a 1.1% gain, and the Dow Jones ended 0.8% higher.

Reddit stock closed 3.6% lower for the week, however, as pullbacks on Monday, Wednesday and Thursday proved to be too much damage to overcome.

Reddit stock news

Reddit received a Neutral rating from Baird on Thursday with the financial firm applauding the company’s unique social network while simultaneously attaching an unenthusiastic $50 price target on the stock. The low upside from Baird was based on its view that Reddit is already richly-valued coming off its $34 IPO price less than a month ago.

"We believe that Reddit is a unique online platform creating meaningful value for advertisers from a growing user base, troves of user-generated content, and a self-regulated (generally safe) environment," wrote Baird analyst Colin Sebastian in a client note.

Reddit, which has about 267 million unique weekly users, saw its user base grow by 27% annually in the fourth quarter. Sebastian predicted that this growth rate will descend to a still robust 16% in 2024.

Another factor giving Reddit a positive profile, and maybe a new revenue stream, is the possibility that its platform will be licensed to train artificial intelligence (AI) models.

"Near-term, we believe the demand for Reddit’s data to train [large language models] and other AI applications is a clear positive, and there is likely more revenue upside from data licensing," wrote Sebastian.

Tech stocks like Reddit have benefited from Friday’s NFP report since an economy with robust employment is more likely to place a premium on digital advertising. Despite February’s jobs number being revised down from 270K to 200K, the Unemployment Rate dipped by a tenth of a percentage point to 3.8%.

AI stocks FAQs

What is artificial intelligence?

First and foremost, artificial intelligence is an academic discipline that seeks to recreate the cognitive functions, logical understanding, perceptions and pattern recognition of humans in machines. Often abbreviated as AI, artificial intelligence has a number of sub-fields including artificial neural networks, machine learning or predictive analytics, symbolic reasoning, deep learning, natural language processing, speech recognition, image recognition and expert systems. The end goal of the entire field is the creation of artificial general intelligence or AGI. This means producing a machine that can solve arbitrary problems that it has not been trained to solve.

What are AI applications?

There are a number of different use cases for artificial intelligence. The most well-known of them are generative AI platforms that use training on large language models (LLMs) to answer text-based queries. These include ChatGPT and Google’s Bard platform. Midjourney is a program that generates original images based on user-created text. Other forms of AI utilize probabilistic techniques to determine a quality or perception of an entity, like Upstart’s lending platform, which uses an AI-enhanced credit rating system to determine credit worthiness of applicants by scouring the internet for data related to their career, wealth profile and relationships. Other types of AI use large databases from scientific studies to generate new ideas for possible pharmaceuticals to be tested in laboratories. YouTube, Spotify, Facebook and other content aggregators use AI applications to suggest personalized content to users by collecting and organizing data on their viewing habits.

What are some stocks that fit into the AI field?

Nvidia (NVDA) is a semiconductor company that builds both the AI-focused computer chips and some of the platforms that AI engineers use to build their applications. Many proponents view Nvidia as the pick-and-shovel play for the AI revolution since it builds the tools needed to carry out further applications of artificial intelligence. Palantir Technologies (PLTR) is a “big data” analytics company. It has large contracts with the US intelligence community, which uses its Gotham platform to sift through data and determine intelligence leads and inform on pattern recognition. Its Foundry product is used by major corporations to track employee and customer data for use in predictive analytics and discovering anomalies. Microsoft (MSFT) has a large stake in ChatGPT creator OpenAI, the latter of which has not gone public. Microsoft has integrated OpenAI’s technology with its Bing search engine.

Could artificial intelligence generate another stock bubble?

Following the introduction of ChatGPT to the general public in late 2022, many stocks associated with AI began to rally. Nvidia for instance advanced well over 200% in the six months following the release. Immediately, pundits on Wall Street began to wonder whether the market was being consumed by another tech bubble. Famous investor Stanley Druckenmiller, who has held major investments in both Palantir and Nvidia, said that bubbles never last just six months. He said that if the excitement over AI did become a bubble, then the extreme valuations would last at least two and a half years or long like the DotCom bubble in the late 1990s. At the midpoint of 2023, the best guess is that the market is not in a bubble, at least for now. Yes, Nvidia traded at 27 times forward sales at that time, but analysts were predicting extremely high revenue growth for years to come. At the height of the DotCom bubble, the NASDAQ 100 traded for 60 times earnings, but in mid-2023 the index traded at 25 times earnings.

Reddit stock forecast

Reddit stock broke above the 4-hour chart's 9 and 20 Simple Moving Averages (SMA) on Friday, which bodes well for further upside. Without many chart structures to go by in the past two-and-a-half weeks, traders will focus on the $51 price level. That level has held up as resistance in several instances on March 22 and March 25, as well as April 2 and 3.

Any break above $51 will be viewed positively and should usher in greather buying pressure. It could be some time, however, before RDDT returns to its all-time high from March 26 at $74.80.

RDDT daily stock chart

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