User-generated content is Reddit's advantage in the age of AI, according to an analyst

Reddit shares could rise by about 53% from current levels, according to analysts at Needham. In their view, the platform’s main advantage is user-generated content, which is becoming increasingly valuable amid the rapid spread of generative AI.

On July 10, investment firm Needham reaffirmed its “buy” rating on shares of the social media platform Reddit, with a price target of $300. This implies upside potential of approximately 53% relative to that day’s closing price.

Reddit’s key asset is “100% human dialogue and information at scale,” notes Needham analyst Laura Martin, as quoted by CNBC. According to her, amid the rapid proliferation of algorithms and large language models, it is precisely this type of content that gives the platform a competitive advantage.

"Reddit offers a human-level verification of information and advice that many users need before following the recommendations of neural networks when making purchasing decisions or addressing other life issues," Martin believes.

According to the Pew Research Center, about half of American adults already use AI chatbots—significantly more than a year ago—and about one in four does so daily, CNBC notes. According to Needham, as generative AI grows in popularity, human-created content will become more in demand, which should increase Reddit’s value for users and investors.

During trading on July 10, Reddit shares fell 2.5%, and their value has already dropped 15% since the start of the year, while the S&P 500 broad-market index has risen more than 10%.

The average target price for Reddit shares is $228.9, which is 17.4% above the current price.

The Wall Street consensus generally aligns with Needham's assessment. According to MarketWatch, 22 analysts recommend buying the stock, 11 advise holding it, and one recommends selling it.

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