Reddit's stock climbed nearly 13% in extended trading on Thursday after S&P Dow Jones Indices announced the social media platform will join the S&P 500, a significant milestone for the company less than two years after its public listing. The inclusion takes effect on Aug. 18, replacing AvalonBay Communities, which is being acquired by Equity Residential. The combined entity will be renamed Vivmark Residential and will remain in the index.
The announcement triggered a sharp rally as investors anticipated increased demand from passive funds and ETFs that track the benchmark. Index inclusion typically forces fund managers to buy the stock, broadening the shareholder base and boosting institutional ownership. Reddit becomes only the second pure-play social media company in the S&P 500, alongside Meta.
Despite the post-announcement surge, Reddit's shares have had a turbulent year. Before the after-hours jump, the stock was down about 35% in 2026 and remained more than 40% below its record high above $270 reached last year. The company's second-quarter results, released last month, beat expectations on both revenue and earnings, but the stock fell 11% after management flagged continued volatility in search-driven traffic.
Reddit reported earnings per share of $1.25 on revenue of $805 million, surpassing analyst estimates of $0.97 EPS on $731 million revenue, according to Fiscal.ai. However, investors focused on management's comments about Google search referrals. CEO Steve Huffman acknowledged that referral traffic had become less predictable during the quarter, noting in the shareholder letter that "search referrals were choppy in the quarter, and traffic was more volatile later in the quarter."
Huffman emphasized the broader picture remains positive, citing strong commercial business and differentiated revenue growth. He also argued that Reddit's vast collection of authentic conversations gives it an edge in an AI-driven internet, where consumers are increasingly skeptical of polished, generated content. "As AI makes information more abundant, the challenge is no longer finding content; it's finding context, personal opinion, and first-hand accounts," he said.
Analysts remain cautiously optimistic. Piper Sandler lowered its price target on Reddit to $195 from $215 while maintaining an Overweight rating, noting the company comfortably beat financial expectations but softer US daily active user growth and cautious comments about Google weighed on sentiment. JPMorgan also reduced its target to $185 from $200, keeping a Neutral rating, citing traffic headwinds from Google's expanding AI Overviews and the ongoing renegotiation of Reddit's data licensing agreement with Google.
The Wall Street Journal reported last month that Reddit is threatening to block Google from scraping its platform for AI model training as the two negotiate a renewal of their existing data-licensing deal. This adds another layer of uncertainty to the relationship, which is critical for Reddit's traffic and revenue.
Cantor analyst Deepak Mathivanan maintained a positive long-term view, stating that Reddit's core advertising business is solid, though volatility in user growth due to external factors is likely to temper near-term excitement. Wedbush analysts also struck an optimistic tone, noting Reddit has weathered traffic disruptions before and its repository of user-generated discussions remains valuable in the AI era.
For context, other tech stocks have faced similar AI-driven search shifts. For instance, Fastly's stock surge highlights how AI demand can boost some companies, while Korean chipmakers rally on AI but face capex risks. Reddit's situation underscores the broader challenge for platforms reliant on search referrals in an AI-transformed internet.
As Reddit joins the S&P 500, the inclusion is a positive catalyst, but the company must navigate the evolving search landscape and its partnership with Google. Investors will be watching closely to see if Reddit can convert its unique content advantage into sustained growth.
This article is for informational purposes only and does not constitute financial advice.
