(Bloomberg) — Reddit Inc.’s blistering advance since it went public last year has inflated hopes for the social-media platform’s earnings Wednesday, and investors will be monitoring the firm’s efforts to leverage its unique content to strike AI licensing deals.
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Wall Street expectations have been sky-high for newly public AI-linked names. Reddit and semiconductor connectivity company Astera Labs Inc. both started trading in March and have seen their shares trounce the broader market. The two are among the top-performing stocks to go public since the market for IPOs ground to a halt in 2022, when the Federal Reserve’s policy tightening drove investors into safer assets.
Reddit’s stock, in particular, has stood out. It has soared more than 500%, the best performance since late 2019 for a US IPO that raised more than $250 million, data compiled by Bloomberg show. After elements of Astera Labs’ earnings Monday disappointed Wall Street, it’s all heightening the focus on Reddit for a signal of how upcoming AI-related IPOs, such as data-center operator CoreWeave Inc., may fare.
“Expectations are high but achievable for the print,” Josh Beck, an analyst at Raymond James, said in a note previewing Reddit’s earnings. If confidence in its growth initiatives continues to improve, “Reddit is likely to retain status as an elite hyper-growth platform,” said Beck, who has a strong buy rating on the stock.
The investment case for Reddit, which hosts conversations on thousands of different topics, has been around how much revenue it can generate by licensing its data to train AI models as it seeks to diversify beyond advertising. The San Francisco-based firm has signed data-licensing agreements with companies including Alphabet Inc.’s Google and OpenAI.
After its previous earnings release in October, Reddit shares surged as the results beat projections. For its latest report on Wednesday, B. Riley’s Naved Khan said he expects the firm to report a solid fourth quarter, driven by continued strong growth in daily active users and an increase in licensing revenue.
The soaring valuations of some AI-related stocks means that solid results don’t always seem to be good enough for Wall Street. Astera Labs, for example, exceeded expectations on both sales and earnings, but analysts said its gross margins fell short, and the stock was down about 7% on Tuesday. Reddit shares fell around 5%.
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