Jim Cramer Approves of Reddit Stock After That 50% Plunge. Is He Right on the Money?

By Joey Frenette Published Mar 24, 11:18AM EDT

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Reddit (NASDAQ:RDDT) trades at a 50% discount after being oversold, with AI licensing deals and its paid version driving monetization growth that could power the stock higher.
Reddit’s AI licensing partnerships and its proprietary Reddit Answers feature position it as a differentiated player in LLMs, where human-verified data and citation capabilities address hallucination problems plaguing competitors.

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Jim Cramer Approves of Reddit Stock After That 50% Plunge. Is He Right on the Money? — © stockcam / iStock Unreleased via Getty Images

Whenever Mad Money host Jim Cramer gives his approval for a stock during his Lightning Round segment, you can be sure that interested investors have another reason to hit the buy button rather than hover their hand over it on any given trading day. With Cramer sounding upbeat after one of his callers recently asked about those hard-hit shares of Reddit (NASDAQ:RDDT | RDDT Price Prediction), I do think it’s time to give the fallen social-media play a second look. After all, it’s a go-to place to source many of the large language models out there. In short, I think Cramer is right to have a constructive view of Reddit.

The stock’s way oversold, and its monetization shift has been quite remarkable. Whether it’s the paid version of Reddit or the AI licensing narrative, it feels like Reddit stock has the levers it takes to continue its growth. Of course, the insider selling activity and still-lofty price of admission (shares go for more than 50 times trailing price-to-earnings (P/E)) work against the bull case, even after a drop of close to 50%. Either way, though, I think sticking with the name in a moment of pain is the right call.

Reddit’s plunge may be more of a gift, given its AI growth drivers

At the end of the day, much of the tech scene is out of favour right now. And while there is a risk that exists as Google (whose parent is Alphabet (NASDAQ:GOOGL)) continues changing its algorithm, I do think that real, human-driven data could go for a premium as we advance further into the AI age. So, while other firms go for the AI agent version of Reddit (think Moltbook), I think the human version could remain the key to success.

In the coming years, it will be interesting to see how Reddit can expand upon its AI licensing deal, whether it’s through Google, OpenAI, or another up-and-comer; there’s a lot of potential for growth that will go straight to that bottom line. Add Reddit’s own AI innovation (Reddit Answers) into the equation, and perhaps the social-media titan could be a go-to place rather than Google in a few years down the road.

Sure, AI tacked onto a site is becoming increasingly commoditized. However, what makes Reddit’s offering stand out is its based on a wide range of human perspectives. Indeed, perhaps using AI to summarize a wider range of human vantage points is the way to go. In any case, I think the mandatory citations are an advantage that may very well help alleviate the hallucination problem plaguing some other LLMs out there.

Even with citations across various websites, it’s still easy for an LLM to get something wrong. Regarding Reddit Answers, it’s a master at navigating its own website. And in that regard, perhaps the “trust” factor and “AI slop” backlash work in Reddit’s favour as it goes about LLMs in its own way.

Reddit’s not a force in AI search quite yet. But will it be in the future?

Of course, Reddit Answers isn’t the big money maker today. But as LLMs do get on the on-ramp for monetization (think ads), I think Reddit has a tremendous opportunity to make a big mark using AI in its own corner of the internet.

Could AI actually help Reddit level the playing field, especially as consumers look to have more of a human-driven answer to their prompt? Possibly. Either way, I don’t think the human touch is going away just because agents are becoming more capable. If anything, that human touch could go for a greater premium as the bot-filled feeds elsewhere look to dominate social-media platforms.

In the meantime, it’s hard to value Reddit. Is it more of a human data “toll booth” that AI will need to pay up on the road ahead? As the free scraping days come to an end, that looks to be the case. Either way, I wouldn’t underestimate the firm’s ability to use AI itself as a technology to power next-level growth. It may very well own the keys to the next generation AI search. And, in my view, that warrants a premium multiple, perhaps one that’s far higher than 50 times trailing P/E.

In short, there are a ton of reasons to like Reddit after a nearly 50% haircut. Cramer’s approval is just one of them.

About the Author Joey Frenette →

Joey is a 24/7 Wall St. contributor and seasoned investment writer whose work can also be found in publications such as The Motley Fool and TipRanks. Holding a B.A.Sc in Computer Engineering from the University of British Columbia (UBC), Joey has leveraged his technical background to provide insightful stock analyses to readers.

Joey's investment philosophy is heavily influenced by Warren Buffett's value investing principles. As a dedicated Buffett disciple, Joey is committed to unearthing value in the tech sector and beyond.