Shares of Reddit (RDDT 5.57%) were moving higher this week after the company launched two new AI-powered advertising tools and benefited from some positive analyst commentary on the stock.

According to data from S&P Global Market Intelligence, the stock was up 19.4% for the week as of Wednesday’s close.

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Reddit gets a tailwind

At the Cannes Lions festival, Reddit announced Reddit Community Intelligence, a new tool that can power insights for advertisers from more than 22 million posts on Reddit.

As part of the launch, it introduced two new “early stage products,” Reddit Insights and Conversation Summary Add-ons.

Reddit Insights is a “scalable, AI-powered social listening tool” that gives marketers proprietary data to help guide ad campaigns.

The Conversation Summary add-on integrates positive user content directly below an ad, helping to get ads better placement and views.

Advertising is Reddit’s primary source of revenue, but the company has historically struggled to monetize its platform the way some larger social media platforms have.

On Wednesday, Reddit jumped 5.5% as B. Riley said that Meta’s deal with Scale AI, in which it’s spending $14.3 billion on a 49% stake in the data labeling company, was a positive sign for Reddit as point to the value of the content on its platform, which Reddit refers to as its “corpus.”

What’s next for Reddit

Reddit has been a big winner since its IPO last month, but the stock has also pulled back sharply from its peak as investors seem to be doubting whether the company can maintain its strong growth rate.

The launch of the AI advertising tools is a step in the right direction, as anything it can do to maintain its momentum in both usage and advertising growth should help drive the social media stock higher.

One of the more up-and-coming social media stocks in recent times, Reddit (RDDT -9.41%), went down quite a bit on Wednesday. Investors traded assertively out of the stock following an analyst’s price-target cut, to the point where it closed the day more than 9% in the red. That was a far steeper fall than the S&P 500 index’s 1.6% decline.

The threat of AI

That pundit was Baird’s Colin Sebastian, and before market open he changed his Reddit fair-value assessment to $120 per share, well down from his previous $140. Despite the double-digit adjustment, he left his “neutral” recommendation on the shares unchanged.

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The analyst’s move, according to reports, was largely due to concerns about artificial intelligence (AI) capabilities being harnessed by tech titans such as Alphabet. Not long ago, that company’s core Google unit rolled out AI responses to standard search queries, and it plans to continue beefing up its AI enhancements.

To Sebastian, this is a threat to Reddit’s user growth, as it can obviate the need for discussion with other users — the bread and butter of Reddit’s business — in order to obtain an answer. Mitigating this to a degree, the pundit wrote, is a data-licensing agreement in place between Reddit and Google.

There’s no substitute for the real thing

While that’s a legitimate source of concern for Reddit investors, I don’t feel it’s quite a deal-breaker. We still have quite a distance to go before AI functionalities can even come close to mimicking genuine and organic human reactions, so Reddit’s forum-style presentation should continue to be popular.

It should also keep attracting new users, adding to Reddit’s base — and providing a foundation for more double-digit percentage growth in fundamentals like revenue and profitability.