Reddit's Paradox: Record Earnings, 20% Plunge, and the Google AI Conundrum

Reddit (RDDT) reported stellar Q1 earnings — revenue up 61%, profit nearly tripled, users up 18% — but the stock fell over 20% after management flagged 'choppy search referrals' due to Google's AI answering queries directly. Retail investors flooded Reddit to debate the irony: Reddit sells its content to Google for AI training, yet that same AI is now reducing traffic. Some saw a buying opportunity, while others questioned the platform's growth trajectory.

Reddit (
$RDDT) reported a blowout Q1: revenue up 61%, profit nearly tripled, and users up 18%. The stock still plunged over 20%.
The culprit: four words in the investor letter — 'search referrals were choppy' — as Google's AI summaries reduce organic clicks to Reddit.
Retail investors debated the irony of Reddit selling its content to Google for AI training while that same AI cannibalizes its traffic, with some buying the dip via options and shares.

The Earnings Beat That Wasn't Enough

On July 31,

$RDDT delivered what many called the best quarter of any social platform this year. Revenue surged 61%, profit nearly tripled, and daily active users grew 18%. Yet the stock cratered more than 20%, touching a 23% intraday low according to CNBC. The disconnect? A single phrase buried in the investor letter: 'search referrals were choppy.'

Wall Street ignored the beat and focused on the fear that Reddit's primary user acquisition channel — Google search — is being disrupted by Google's own AI Overviews, which answer queries directly on the search results page, reducing the need to click through to Reddit threads.

The Google AI Paradox

The situation has a sharp irony that did not escape retail investors. Reddit has a content licensing deal with Google, selling its data to train the very AI that now answers questions without sending users to Reddit. As one r/stocks user put it: 'Google pays Reddit for the data, then uses it to answer questions so people don't visit Reddit.' Reddit's CEO argued on the earnings call that users prefer real community answers over AI summaries, but the market remained unconvinced.

RDDT

Retail Reaction: Fear, Irony, and Dip Buying

The r/stocks, r/investing, and r/stockmarket communities lit up with posts dissecting the paradox. A post in r/ValueInvesting highlighted that Reddit's trailing PEG ratio had compressed to 0.1, drawing parallels to historical compression seen in

$NVDA and

$AAPL. Meanwhile, r/wallstreetbets saw a user buy 100 shares at the open, explicitly inversing their own bearish thesis. In r/options, traders discussed cash-secured puts and long calls, arguing the Google issue is overblown and a future deal will materialize.

Overall, Reddit discussion sentiment on

$RDDT was mildly positive at 0.29, but the sheer volume — 1,210 comments and 2,704 upvotes across 18 posts — underscored how deeply the Google AI paradox resonated with retail investors.

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