Why Reddit Stock Rallied This Week Despite the Volatility

After last week's explosive initial public offering (IPO), theReddit (New York Stock Exchange)stock (market)(Code: RDDT)'s shares ended the week with more gains in trading. According to S&P Global Market Intelligence, the social media company's shares ended the shortened trading week up 7.2% from Friday's close.S&P 500The index rose 0.4% for the week.

In addition to the positive momentum at Big Pan, Reddit's rally was fueled by expectations that the company may have an undervalued opportunity in the artificial intelligence (AI) space. The company has begun licensing its data for large-scale language model (LLM) training, a move that could significantly improve the economics of the business.

Reddit Soars Earlier This Week Thanks to Artificial Intelligence Boost

Prior to its IPO, Reddit filed an S-1 with the U.S. Securities and Exchange Commission, which lays out key information about the company's business, risks, and growth opportunities. The company noted in the filing that it hopes to make data licensing an important new sales pillar.

Reddit said it has signed $203 million worth of郃 contracts to provide data for application programming interfaces (APIs) and training for LW8 over the next few years. The company said it expects data license sales to reach at least $66.4 million this year. Later, it was announced that the company had signed a deal this year withAlphabetsigned a data license worth approximately $60 million.

Reddit was trading strongly earlier this week, fueled by artificial intelligence and data monetization opportunities. At one point, the company's stock price was up 20.2% from the previous week's closing price, but bearish comments from some analysts and insider selling led to a drop in the stock price.

Reddit Stock Trading Volatile

New Street issued a report on March 26th with a Neutral rating and a price target of $54 per share on Reddit. Analysts at the firm believe that the potential gains from the company's emerging data licensing business have already been factored into the stock price. New Street's price target at the time of the report hinted at significant downside potential, but the price target is actually significantly higher than the stock's current price of about $49 per share.

On March 27, Hedgeye analyst Andrew Freedman also posted on X (the predecessor to Twitter) that Reddit was a short candidate with 50% of potential downside. These comments appear to have spurred a sell-off in the stock.

The second half of the week saw Reddit's key leaders sell off the company's stock, adding another negative factor to the mix. In a March 27th SEC filing, the company's top executive Steve Huffman, top financial officer Andrew Vollero, top operating officer Jennifer Wong, and top technology officer Resistopher Slowe all sold their shares on March 25th. Reddit managers sold a total of about $41.1 million worth of company stock.

Should you invest $1,000 in Reddit right now?

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Why Reddit stock is rising amid volatility this week.