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Reddit stock advances as much as 17% after data partnership with OpenAI

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  • OpenAI is partnering with Reddit to incorporate user text in its LLM.
  • Reddit stock gains as much as 17% on Friday before trading back to 12%-13% range.
  • RDDT stock has seen more than 11.6 million shares trade hands by lunchtime on Friday.
  • The $74.90 all-time high is the only point of reference for bulls.

Reddit (RDDT) stock is experiencing its second-best ever session gains on Friday after OpenAI, the creator of ChatGPT, announced a partnership with the social media platform.

OpenAI will be channeling Reddit comments and text into the large language model (LLM), as well as allowing Reddit to build AI products on top of the OpenAI’s tech stack. OpenAI, which has received its largest investment from Microsoft (MSFT) to date, relies heavily on advanced GPU chips from Nvidia (NVDA). That makes this news significant for the entire AI sector.

The broad market is quite stable on Friday after a week filled with topsy-turvy movement that started with a bristling meme stock run on Monday and Tuesday. All three major indices — the S&P 500, the NASDAQ, the Dow Jones — are slightly ahead at the time of writing.

Reddit stock news

In a blog post on the company’s website, Reddit layed out the three tentpoles of its partnership with OpenAI:

“OpenAI will bring Reddit content to ChatGPT and new products, helping users discover and engage with Reddit communities. To do so, OpenAI will access Reddit’s Data API, which provides real-time, structured, and unique content from Reddit. This will enable OpenAI’s AI tools to better understand and showcase Reddit content, especially on recent topics.

This partnership will also enable Reddit to bring new AI-powered features to redditors and mods. Reddit will be building on OpenAI’s platform of AI models to bring its powerful vision to life.

Lastly, OpenAI will become a Reddit advertising partner.”

Reddit did not say explain how OpenAI becoming an advertising partner would benefit the topline, but the market views the partnership as Reddit raising its profile via a partnership with the world’s leading LLM.

“Reddit has become one of the internet’s largest open archives of authentic, relevant, and always up to date human conversations about anything and everything,” said CEO and co-founder Steve Huffman in a statement. “Including it in ChatGPT upholds our belief in a connected internet, helps people find more of what they’re looking for, and helps new audiences find community on Reddit.”

Also relevant to RDDT’s rally on Friday is that as recently as the start of the week, more than 10% of Reddit stock was held short. The spike in price on Friday would have caused many short-sellers to ditch their positions and repurchase shares.

By lunchtime, 11.6 million shares had traded hands on Friday with several hours left to trade. That compares to 13.5 million shares from May 8, the largest single session of volume in the past month. RDDT will surely surpass that volume level by the close, based on its current trajectory.

AI stocks FAQs

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.

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.

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.

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 reached its second highest session level ever at $66.15 in Friday's mid-morning session. But RDDT also cleared the $66.30s in the pre-market session. This area will now be viewed as minor resistance to be cleared.

The only target in sight is the all-time high of $74.90 from March 26, Reddit's fourth day of trading publically. The only support level of any substance is $51.00. That's where RDDT saw resistance in late March and early April, and the 20-day Simple Moving Average (SMA) is also hovering just below there.

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RDDT daily chart

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