Shares in Reddit (RDDT) plunged by over 9% on Wednesday afternoon following reports that the social media company will not renew its AI content deal with Alphabet's (GOOGL) Google. Analysts on Wall Street appear split on just how much impact the cancellation could have on the social news aggregator.

Claim 55% Off TipRanks

• Unlock powerful investing tools with TipRanks Premium to make smarter, more confident investment decisions
• Subscribe to TipRanks Smart Investor Newsletter, and discover new investing opportunities with data-backed stock picks

What Is Happening?

In 2024, Reddit agreed to allow Google to use its users' content, especially those posted on its message boards, to train its AI models. It is expected to renew the deal in the first half of 2027. However, The Wall Street Journal on Tuesday reported that Reddit was considering walking away from the contract.

This comes as Google's AI features, such as AI-generated summaries at the top of search results, have dramatically cut traffic to outside websites. This has raised concern among media publishers and website owners about the impact on their earnings.

Google Makes Up Less than 2% of Reddit's Revenue — DA Davidson

On Wednesday, DA Davidson analyst Wyatt Swanson reaffirmed his Buy rating on Reddit's shares. He also set a price target of $200, implying more than 18% upside.

Swanson noted that the deal currently generates $60 million per year for Reddit. This represents less than 2% of the Wall Street consensus for the social media company's 2026 revenue.

Nonetheless, the analyst believes that canceling the deal could put pressure on Reddit's overall daily active user (DAU) growth over the coming quarters. This could be particularly so for logged-out users. For context, Reddit grew its DAU by 17% year-over-year in Q1 2026 to 126.8 million.

What's more, Swanson believes that both companies will try to devise a solution to the referral traffic problem.

'A Significant Step Backward'

By contrast, RBC Capital analyst Brad Erickson believes abandoning the deal will be a negative for Reddit. Erickson noted that investors had been excited in recent months about a possible renewal of the deal.

Non-renewal "would be a significant step backward if the reports bear any resemblance to the truth," Erickson added.

The analyst maintained his Hold rating on RDDT stock. He also assigned a $250 price target, predicting about 48% upside.

Is Reddit Stock Worth Buying?

On Wall Street, Reddit's shares remain a Moderate Buy based on analysts' consensus rating. This breaks down into 13 Buys, seven Holds, and one Sell issued over the past three months.

However, the average RDDT price target of $222 implies about 32% upside in the months ahead (see RDDT stock forecast here).