NEW YORK — Reddit’s stock continued its decline for a second consecutive day Wednesday, falling as much as 8% in early trading, after data showed a steep drop in how often its content appeared in ChatGPT responses.
The slide extends a 5% loss from the previous session and comes amid growing investor concerns about the company’s reliance on AI data licensing deals to sustain growth.
According to figures released by AI analytics firm Promptwatch, references to Reddit content in ChatGPT responses fell to just 2% on Tuesday, down from 9.7% a month earlier. At its peak in mid September, Reddit appeared in more than 14% of ChatGPT generated answers.
The decline marks a sudden reversal for Reddit, which had positioned itself as a crucial data source for major AI systems through lucrative licensing agreements with OpenAI and Google.
- Those deals, valued in the hundreds of millions, allow AI developers to train their models using Reddit’s extensive trove of community generated discussions.
Reddit, often used by internet users as a crowdsourced knowledge base, has long served as an informal search engine. Many users add “reddit” to their Google searches to find real world advice, opinions, and step by step guides.
With the rise of AI chatbots like ChatGPT, Reddit faced the risk of reduced direct traffic as users turned to AI for answers. But by monetizing its data through licensing deals, the company has sought to turn that challenge into an opportunity.
Still, analysts warn that declining visibility within AI tools could undermine the value of those partnerships. Reddit’s licensing model depends heavily on consistent usage of its content in AI outputs, said Mark Ellison, a tech equity analyst at Stamford Research.
A sharp drop in citation rates could suggest changing data patterns or reduced weighting of Reddit’s content within the models.
Industry experts say the decline in ChatGPT citations could reflect multiple factors, including algorithm updates, data mix adjustments, or shifting user prompts.
ChatGPT and other AI systems continuously evolve, said Priya Deshmukh, an AI researcher at Columbia University. “If OpenAI recently recalibrated how sources are referenced, that could temporarily affect which platforms appear most frequently in answers.”
Deshmukh added that the reduction may not necessarily signal decreased use of Reddit data in training. “Citation frequency is one visible metric, but it doesn’t fully represent how much Reddit content is embedded in the model’s knowledge base,” she said.
Still, investors appear sensitive to any indicators that the company’s data strategy may be losing traction. Shares of Reddit (ticker/RDDT) surged earlier in September following reports from Bloomberg that the firm was negotiating dynamic pricing with Google and OpenAI.
Under such a structure, Reddit would earn more as its content is used more often in AI generated responses. The promise of flexible pricing tied to usage gave investors confidence that Reddit could scale revenue with AI adoption, Ellison said. “But if usage falls, that optimism fades quickly.”
Promptwatch data showed Reddit remained the most cited social platform in ChatGPT’s responses overall, averaging 4.3% in September. The next most cited source, LinkedIn, accounted for just 0.4% of responses.
Reddit’s visibility within AI outputs far outpaces other social networks, but the recent drop from 14% to 2% represents a sharp correction.
The company’s revenue, however, remains largely tied to advertising. In its most recent quarterly report, Reddit reported an 84% year over year increase in ad revenue to $465 million for the three months ending June 30, representing 93% of total revenue. It marked Reddit’s fastest growth in three years.
Despite strong ad sales, investors have expressed concerns over the platform’s traffic volatility. Previous earnings reports triggered sell offs amid fears that changes to Google’s search algorithms could reduce the number of visitors landing on Reddit pages.
Users on the platform’s finance and technology forums voiced mixed reactions to the stock’s performance. “I’m not too worried,” said Daniel Brooks, a Reddit investor from Chicago who holds shares purchased during the company’s March IPO.
Reddit’s data is still valuable to AI companies. This could just be a temporary dip. Others were more cautious. “If ChatGPT starts relying less on Reddit, those licensing deals could be worth less,” said Lisa Nguyen, a retail investor in San Francisco. That’s a real risk for long term growth.
On Reddit’s own r/investing community, users debated whether the stock’s current price reflected an overreaction or a sign of structural weakness in its business model.
Analysts say the next few months will be critical for Reddit as it continues negotiating future licensing contracts and expanding its AI product line.
Bloomberg previously reported that Reddit aims to finalize a new agreement with Google that includes dynamic pricing, allowing the company to adjust rates based on actual usage by AI models.
If Reddit can secure a flexible pricing structure, it could stabilize revenue despite fluctuations in reference rates, said Emily Zhao, a senior analyst at Horizon Capital. “But investors need clarity on how these contracts translate into predictable earnings.”
Meanwhile, the company is investing in its own AI powered search and ad tools, seeking to diversify revenue beyond third party data deals.
“Reddit has made it clear it wants to be more than a data vendor,” Zhao said. “Its goal is to leverage AI internally to enhance engagement and monetization.”
Reddit’s recent stock decline underscores the fragile balance between its traditional advertising business and emerging AI partnerships.
While licensing deals with OpenAI and Google offer new revenue streams, the sudden drop in ChatGPT references has raised questions about long term sustainability.
With earnings still heavily dependent on ad sales and user traffic, Reddit faces mounting pressure to prove that its AI strategy can deliver consistent value even as the visibility of its content within leading AI systems fluctuates.