RDDT just blew past expectations: 677% EPS surge, and massive S&P & AI catalysts ahead

Reddit just reported its 3rd straight quarter of >200% EPS growth (+677%, 7.8x). Its P/E is down to 47.6, and forward P/E is 19 (47.6/2.45). It will report another >200% EPS growth quarter in July.

RDDT's 2026 Q1 EPS of $1.01 has just beaten 2027 Q1 EPS expectations of $0.98 (https://www.nasdaq.com/market-activity/stocks/rddt/earnings). Yes, RDDT beat 2 years of analyst expectations at once.

Upcoming catalysts

• Earnings reports every 3 months
• S&P 500 inclusion (likely within 2-3 quarters; only a few companies ahead now)
• AI development & deals
  • Anthropic settlement and likely data-licensing deal (~2026-11)
  • Google AI deal renewal (before 2027-02)
  • OpenAI deal renewal (before 2027-05)
  • Potential deals with other AI players (Perplexity, Meta, xAI, etc), anytime
  • Reddit isn't required to build AI models, but top-tier models greatly benefit from Reddit data for real human voice, conversational tone, emerging trends, and hyperlocal information (such as someone spotting a promotion in a Chicago hair salon). Until AGI can fully imitate humans and access instant, worldwide information (which would require ubiquitous camera and microphone coverage, very difficult to approve and likely never achievable), Reddit remains necessary for top-tier AI.
  • Youtube's data is largely visual and nonverbal, while chatbots rely on text, and require Reddit to learn textual communication. If the AI industry succeeds, there will be enough money to handsomely pay all sources.

Headwinds and tailwinds

• AI
  • Reddit usage
    • AI could reduce Reddit usage for some types of Q&A (such as technical assistance). However, most Q&A can't be replaced, such as people asking how others feel about a book or movie, or seeking human opinions.
    • Reddit's main uses are community discussion, entertainment/time-passing, opinions, and news and reactions. These can't be replaced by AI.
    • People want to share pictures of their cats with other people, not AI. Sort r/cats by New and see how many posts there are. r/cats is exploding and could be worth $2B as a site in itself. Reddit has hundreds of thousands of growing communities.
  • Tailwind if AI succeeds
    • Electricity reduced physical effort without reducing jobs (people simply got more work done). If AI succeeds, it will reduce mental effort without reducing jobs. Future workers will then train for roles such as software and hardware engineering, system admin, cybersecurity, and robotics maintenance. As work becomes easier, people will work less and earn more, leading to higher Reddit usage and ad revenue.
    • AI is a labor-saving tool, like a toaster or refrigerator. People use it to get things done or keep it running in the background, while using the time saved to interact with other humans.
  • AI is net positive for Reddit. Whether AI succeeds or stays niche, Reddit does well.
• Growing internet usage
  • As of 2026-05:
    • Global population: 8.3B
    • Internet users: 5.5B (66%)
    • Average use: 6.5 hours/day → 36B total hours/day
  • By 2036:
    • Global population: 9B
    • Internet users: 7.9B (88%)
    • Average use: 7.6 hours/day → 60B total hours/day
  • Reddit can capture a growing share of an expanding pool of attention.

Eye test

• There's a subreddit for everything, with users submitting engaging content for the community to enjoy.
• The website and mobile app run smoothly and feel sleek and modern.

Investing method

• If you believe in RDDT, buy and hold long-term.
• Don't trade in and out
  • No one can predict short-term market movements. If they could, there would be far more billionaires. A 25% gain compounded 50 times turns $100k into $7B (100,000*1.25^50). Millions have tried to trade or time the market and failed; we won't be different.
• Avoid leveraged funds (such as RDTL)
  • Leveraged ETFs rebalance daily, which creates drag. For example:
    • RDDT +10% then -10% = 1.2*0.8 = 0.96 (-4%)
  • They're mathematically set up to lose. The funds adjust leverage too slowly. If using leverage, either keep debt constant (don't adjust debt) or keep leverage constant (adjust debt every tick). A simple tabulation in a spreadsheet proves this (I can provide it in a later post).

Why markets misprice stocks

• Markets are not fully efficient. They often badly misprice stocks because the future is unpredictable and institutions are structurally risk-averse.
  • Apple released the iPhone in 2007-06. Anyone with eyes could see it was a world-changing device, yet Apple's stock fell 57% in 2008. Apple had nothing to do with the bank failures of that time. Since then, Apple's total return has been 115x.
  • The market also badly mispriced Amazon (2,982x since IPO), Google, and Meta.
  • It did the same with Reddit's IPO, valuing the 6th-largest website in the world at pocket change for $6.4B. The stock promptly rose 5x from $34 to $166, yet it is still significantly undervalued.
• Institutional risk aversion
  • Much of the world's money is in pension, sovereign, and endowment funds. Managers typically hold variations of a conservative 60% stock / 40% bond portfolio, earning 5-6% returns while keeping their jobs. Their goal is to keep funds stable for annual withdrawals by governments and retirees, not to maximize growth.
  • Decisions are reviewed by executives and boards. Achieving a 30% return while risking a 5% loss (12.5% expected return) may be better for the fund, but the former might earn the manager a 20% bonus, while the latter could cost them their job. As a result, they are incentivized to be risk-averse, selling stocks at the first sign of uncertainty and moving to bonds or cash to avoid negative returns.
  • This is why 10-baggers (which are often smaller and more volatile) are neglected by large institutions, leaving opportunities for sharp investors. Once they reach mega-cap status, institutions step in, as holding a top-10 stock is seen as "common sense", and they won't be judged if it declines.

Assorted

• Daily active user (DAU) growth
  • The US is the global tech leader. People worldwide use Windows/Mac, Google, Amazon, and Reddit/Meta. Companies are built in the US, gain adoption there, and then the world follows.
  • As of 2026-05, 50% of the US uses Facebook daily vs 24% internationally. 16% of the US (54M of 343M) uses Reddit daily, vs 0.9% internationally (73M of 7.8B). There's a gap in International users that is currently being closed.
  • With the US representing only 4% of the global population (343M of 8.3B), international growth (+26% over the past year) carries the load.
  • International users communicate in English (r/brazil, r/norway), local language (r/brasil, r/norge), or both.
• Don't stress about logged in or out
  • Reddit is in the early stages of growth and has just reached the critical mass needed for rapid user expansion. I've never seen what some sites do because they show a "log in" prompt when I visit, and I just leave. People can consume Reddit content freely, and many will create accounts because they find it interesting and want to participate.
  • Reddit could grow steadily toward 1-3B DAU, or, if discovery accelerates, scale much faster. If the entire world is exposed to Reddit, it could reach billions of DAU sooner than expected.
  • Logged-out users see ads too and generate revenue.
• Executive sales
  • Reasons for executive sales: Diversification, preplanned sales, taxes, marginal utility, lifestyle, philanthropy.
  • Zuckerberg sold 30,000,000 shares of Facebook at its IPO (2012) for $38/share and 41,000,000 shares at $55 the following year. Facebook/Meta has performed excellently. Each of the Mag 7 execs had rapid sales before their fastest-growing years. Reddit's executive sales have been relatively slow.
• Evergreen platform
  • All developments are bullish for Reddit. Positive news brings discussion; negative news brings debate and venting.
  • Reddit is designed to win: a global forum for anything people care about.
• Search optimization
  • Google needs Reddit to stay dominant. People use search to find things that interest them. People search "world news" or "best phone" and expect Reddit to be among the top results (often the top). If Google doesn't provide this, people will switch to alternatives that do. Google understands this and keeps Reddit highly ranked.
• Meme potential
  • RDDT is the obvious choice for any crowd-driven speculation. A billion weekly actives represent serious capital. Assume it won't happen, but there's a nonzero chance.
• Unicorn upside (top-3 market cap)
  • Reddit has the potential to become the final, unified form of media (traditional + social). Everyone is both a news source and an audience.
  • Answers is already a developed AI model and could, if Reddit chooses, evolve into a full chatbot (like GPT or Gemini). It could be called Robo.
  • Reddit has many initiatives planned that will surprise people when the time is right. Huffman is extremely smart.