Why Reddit Stock Soared 40% in August

Key Points

• Reddit's Q2 earnings of $0.45 per share demolished analyst expectations of $0.19, while revenue rose 78% year over year.

• The platform's daily active users grew 21% as people increasingly seek human answers instead of AI-generated content.

• 10 stocks we like better than Reddit ›

Shares of Reddit (NYSE: RDDT) rose a mind-boggling 40.2% in August 2025, according to data from S&P Global Market Intelligence. The stunning gain rested almost exclusively on a fantastic earnings report published at the very end of July. Reddit's stock gained 17.5% the next day and a total of 31.9% over the first week of August.

Reddit crushed Wall Street's estimates

The average analyst had expected Reddit's second-quarter report to show earnings of roughly $0.19 per share. Revenue was targeted at $426 million, 51% above the year-ago period.

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But Reddit exceeded these expectations by a country mile. Earnings landed at $0.45 per diluted share, up from a net loss of $0.06 per share in Q2 2024. Top-line sales soared 78% to a nice, round $500 million.

And the hits keep coming as you walk down Reddit's financial statements. Gross margin grew wider, free cash flows more than quadrupled, and Reddit's daily active users increased 21% year over year.

Image source: Getty Images.

Why humans still matter in the age of AI

This company holds a unique place in the world of easily accessible information, in this day and age of artificial intelligence (AI). Reddit's traffic is soaring as people around the world seek human answers to complicated questions. It's not that Reddit has sworn itself off AI assistance forever -- automated analytics play an important role in the site's advertising and content-promotion algorithms -- but Reddit's content is largely created by human users.

"In a world increasingly dominated by algorithms and automation, the need for human voices has never been greater," CEO Steve Huffman said on the Q2 earnings call. "Eighty percent of users in a recent survey said that they believe some questions can only be answered by humans as opposed to AI-generated summaries."

So Reddit is enjoying a golden age of extreme growth, driven at least in part by the same AI-centric culture that could be seen as a serious threat. Cyberspace can be a complex and surprising place sometimes.

And the terrific Q2 report fits into this larger trend. Reddit has delivered strong earnings and revenue surprises in the last five quarterly reports and management set up bullish guidance for the next period as well. As of Sept. 4, the stock has gained 281% in 52 weeks and trades at a red-hot 192 times trailing earnings.

Reddit is a costly market darling at the moment, for all the right reasons. Buying this stock might make sense if you base your analysis on Reddit's incredible user and revenue growth, leaving profitability as a long-term concern. But if you care about profit-based valuation metrics at all, I understand if you take one look at Reddit's figures and walk away.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.