Reddit jumps 16% on S&P 500 inclusion despite 31% YTD slide

Reddit's addition to the S&P 500 triggered a 16% after-hours surge, yet the stock remains down 31% year-to-date as AI-powered search threatens its traffic.

Reddit shares jumped 15.87% after hours to about $177.80 after S&P Dow Jones Indices said the platform will join the S&P 500 on Aug. 18.

"We are proud to be included in the S&P 500 index," Drew Vollero, chief financial officer at Reddit, said. "This recognition reflects the growth, momentum, and stability we have achieved as a public company."

Reddit replaces AvalonBay Communities, which is being acquired by Equity Residential. The inclusion will drive passive fund buying as index funds and exchange-traded funds tracking the benchmark rebalance their portfolios. Reddit has posted eight consecutive quarters of revenue growth above 60 percent, with second-quarter revenue up 61 percent year-over-year to $805 million and net income up 183 percent to $253 million. Daily active users reached 130.3 million, up 18 percent.

The milestone comes as Reddit stock remains down 31 percent year-to-date, weighed by declining Google search referrals as AI-powered search reshapes how users reach content. Index inclusion could provide a durable floor from passive demand, but the medium-term outlook hinges on how Reddit manages its reliance on search traffic.

Index Inclusion Brings Passive Demand

The S&P 500 addition requires a minimum market capitalization of $22.7 billion, along with profitability, liquidity, and public float requirements. Reddit, which went public in March 2024, now carries a market capitalization of about $30.4 billion. The company has signed multi-hundred-million-dollar agreements with OpenAI and Google to license community data for AI model training and is investing in advertising technology to expand its share of the digital ad market dominated by Meta Platforms and Google.

AI Search Casts a Shadow

Investors had hoped Reddit would capitalize on the AI boom with new revenue streams, but disappointment mounted when the latest earnings report failed to announce new data licensing deals. On July 31, the day of the earnings release, the stock plunged nearly 21 percent, its worst single-day performance since going public. CEO Steve Huffman said during the second-quarter earnings call that "search referrals were volatile this quarter, and that trend intensified as the quarter progressed." The Wall Street Journal reported that Reddit is considering blocking Google's data access, joining media outlets such as USA Today and Politico, as Google's Gemini AI model uses Reddit data while search referrals decline.

US daily active user growth slowed to 6 percent in the second quarter from 7 percent in the prior quarter, while international user growth reached 28 percent, though monetization per overseas user trails the US market.

The S&P 500 inclusion arrives during a period of strength for US equities, with the benchmark up nearly 14 percent in 2026 and S&P 500 companies posting record net profit margins of 16.9 percent. Softer inflation data has reduced the probability of a Federal Reserve rate hike at the September meeting to about 30 percent, a backdrop that supports growth-oriented stocks. Whether index membership marks an inflection point for Reddit depends on its ability to stabilize search traffic as AI-powered search continues to reshape the internet.

This article is for informational purposes only and does not constitute investment advice.