Why I'm Buying Reddit's IPO

Reddit priced its IPO tonight at $34 a share, and I'm buying through the Directed Share Program. Most people still look at Reddit and see an advertising platform with a mixed track record. I see something else: one of the largest collections of real human conversation ever created, at the exact moment every AI company in the world needs it.

How most people see Reddit

The usual take on Reddit goes like this. It's a big, loyal community that has struggled to make money. Advertisers are nervous about user-generated content. It has never turned a profit. Compared with Meta or Google, its ad business is small.

All of that is true. According to Reddit's S-1 filing, it brought in about $804 million in revenue in 2023, nearly all of it from advertising, and it lost money. If you value Reddit purely as an ad company, the IPO price looks rich.

I think that's the wrong lens.

What Reddit owns

Reddit is almost two decades of people asking questions, answering them, arguing, recommending products, and explaining how things really work. It's organized by topic into communities, and voted on by the people who know the subject best.

That's exactly what large language models need. To sound human and give useful answers, a model has to learn from how real people actually talk and solve problems. Polished marketing copy doesn't teach that. Reddit threads do.

• It's human. Real people, writing in their own words, about their own experience.
• It's organized. Hundreds of thousands of communities, each focused on one subject.
• It's ranked. Votes signal which answers the community trusts.
• It's constantly refreshed. New conversations every day keep the data current.

AI has been training on it for years

Here's the part most people miss. Reddit has quietly been one of the most important training sources for the big AI models. Its conversations show up in the datasets used to train the systems everyone is now talking about.

For most of that time, Reddit didn't get paid for it. That's now changing.

Last month, Google and Reddit announced an expanded partnership that gives Google access to Reddit's data through its API to help train and improve its AI. The S-1 shows the bigger picture: Reddit disclosed data licensing agreements with a total contract value of about $203 million, signed in January 2024, with terms of two to three years.

That's a brand-new revenue line that barely existed a year ago, and it costs very little to deliver. The conversations already exist. Reddit is simply charging for access to something it already has.

Why this matters for the valuation

Markets value companies on what they believe the future looks like. Right now, most investors are pricing Reddit as an ad business that may or may not reach profitability.

I'm pricing it as a data company. If AI keeps improving at the pace it is now, every model maker will need more high-quality human conversation, and there are only a handful of places to get it at Reddit's scale. That's a scarce asset, and scarce assets get repriced once the market understands them.

1. The ad business keeps growing as Reddit improves its targeting and tools. That's the base case.
2. Data licensing becomes a real second engine, with more AI companies signing deals.
3. The market changes how it sees Reddit, from a social site that struggles with ads to an owner of irreplaceable AI training data.

I don't need all three to happen. I need the third one to start, and I think the first two make it likely. I wrote more about how buyers and investors price companies in valuation is a range, not a number.

The risks

This isn't a sure thing, and I'm going in with my eyes open.

• Profitability. Reddit has never made money. It has to prove it can.
• The community. Reddit depends on volunteer moderators and active users. Last year's protests over API pricing showed how quickly that relationship can sour.
• Concentration. A few large AI companies are the buyers for data licensing. If they find other sources, or build their own, that revenue could shrink.
• Regulation. The rules on using public content to train AI are still being written.

I'm comfortable with those risks because the core asset is so hard to copy. You can't build twenty years of organized human conversation overnight.

Why I'm doing this

I like investments where the market is looking at the right company through the wrong lens. Reddit is one of those. The crowd sees an ad platform. The AI companies already see what it really is, and they're paying for it.

I'll confirm my order before the deadline tomorrow morning and hold for the long term. I'll write a follow-up once there's enough time to see whether the thesis holds.

Update, October 2026

Two and a half years later, Reddit closed at $147.86 on October 2, 2026, more than four times the $34 IPO price. The thesis held: Reddit is now widely understood as one of the most valuable sources of human data for AI, not just an ad platform.

For how I think about where to put money today, see Investing, and for a more recent example of AI companies being valued on their data, read Salesforce paid 67x revenue for Listen Labs.