Wells Fargo & Company lowered its rating and target price for Reddit (RDDT.US): AI search will have an adverse impact.

Wells Fargo & Company on Monday downgraded its stock rating on Reddit (RDDT.US) from "buy" to "hold" due to Alphabet Inc. Class C (GOOGL.US) accelerating its artificial intelligence (AI) search function, causing a change in search traffic trends that may have a negative impact on Reddit. Wells Fargo & Company stated that due to the change in search trends, they expect Reddit to be affected in terms of data authorization revenue from high-profit rate users. The bank also mentioned that Reddit may have difficulty meeting market expectations for growth in advertising revenue from logged-in users. Wells Fargo & Company believes that Reddit's valuation multiples are expected to continue to be under pressure as user behavior is rapidly changing, and changes in search behavior may result in more prolonged user losses, thereby affecting the company's financial performance. The bank stated in a report, "We believe that search behavior is undergoing a period of rapid change, and Reddit, like other platforms that rely on search referral traffic, must navigate this challenging time. We expect non-logged-in users to face more sustained pressure, ultimately impacting the acquisition process of logged-in users and the long-term growth potential of the advertising business. With Alphabet Inc. Class C pushing for AI search transformation more aggressively, we believe the uncertainty facing Reddit is increasing." Wells Fargo & Company lowered its target price for Reddit from $168 to $125. Data shows that Reddit's stock price has fallen by nearly 34% so far this year, while the S&P 500 index has risen by 1.3% year-to-date.