Prediction: Reddit Will Beat the Market. Here's Why.

Over the course of 2024, the S&P 500 index generated a return of 17.7%. That represented an above-average year for the benchmark index. By contrast, however, shares of Reddit (NYSE: RDDT), which debuted on the stock market in March 2024, advanced 262%, and are up another 18% so far in 2025.

I predict that in 2025, Reddit will once again beat the market. Here's why.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

Image source: Getty Images.

Understanding Reddit's business model

First, let's get a grip on what Reddit does and why its shares rose over the last 10 months.

Reddit is a social media network -- a collection of message boards -- each based around a particular topic, attraction, or pursuit. Whether it's movies, cooking, gardening, car repair, or just about any other pursuit, there's likely a Reddit board dedicated to the topic.

That makes Reddit a valuable source of information on the web -- and that's why Reddit is one of the most-visited websites on the planet. Indeed, according to Similarweb, a platform that analyzes website traffic, Reddit ranks No. 8 overall in web traffic, right between Wikipedia and ChatGPT, and ahead of giants like Amazon and TikTok.

So, clearly, Reddit is a major player on the internet, but that alone is not why its stock is rocketing into the stratosphere. Instead, it comes down to that old driver of stock market success: growth.

Reddit generates revenue through ad sales. And since the company's platform is already based on interests, it's easy for the company (and its advertisers) to get the right ads in front of the right users.

What's ahead for Reddit and why its stock can beat the market again

Clearly, the company's business model is already paying off.

In its most recent quarter (for the three months ending on Sept. 30, 2024), Reddit reported revenue of $348 million, up an eye-popping 68% from a year earlier. Moreover, daily average users (DAUs) increased by 47% to 97 million.

Looking ahead, the company plans to keep that blistering growth going in two ways, both of which involve artificial intelligence (AI):

First, Reddit is hard at work translating all of its existing content -- decades worth of posts -- from English into other languages. The company started with French, Spanish, German, Italian, and Portuguese, with plans to roll out automatic, real-time translation for another 25 languages this year. In doing so, the company hopes to grow its international audience.

Second, Reddit's Corpus -- its enormous cache of data -- is itself an enormously valuable asset. That's because AI models need to be trained on tremendously large datasets. Therefore, it's likely that AI developers may look to license Reddit's Corpus to help train the next generation of AI models -- providing Reddit with another lucrative revenue stream in addition to advertising. Indeed, Alphabet, the parent company of Google, already inked a similar deal with Reddit last year.

Reddit has several paths to success. It is growing its user base, expanding into foreign markets, and ramping up its ad business. That alone will support its stock price over the next year. What's more, given the potential for lucrative partnerships with AI developers, Reddit stock appears positioned to beat the market.

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

Before you buy stock in Reddit, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Reddit wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $725,740!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

Learn more »

*Stock Advisor returns as of January 27, 2025

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, and Reddit. The Motley Fool has positions in and recommends Alphabet and Amazon. The Motley Fool has a disclosure policy.