Investing.com — Shares in Reddit rose in premarket trading in the U.S. on Friday after the social media platform announced a new content partnership with OpenAI.
Under the agreement, OpenAI will gain access to content on Reddit’s website, while Reddit will integrate new AI features for users and mods, the companies said Thursday. The two will also collaborate on advertising.
Shares of Reddit rose more than 13% in premarket trading.
Thursday’s announcement comes as OpenAI looks to strike deals with media groups in an effort to help train its powerful AI model with data from sources widely considered reliable. OpenAI, which is backed by tech giant Microsoft (NASDAQ:), is also facing legal action from a number of publishers who claim content generated by the company infringes on their copyrights.
Reddit previously partnered with Alphabet Inc’s (NASDAQ:) Google, with the latter also gaining access to the social network’s data for its AI products.
“Big picture, like the [Google] relationship, this contract once again emphasizes the value of [Reddit]’s unique corpus of data in the [generative artificial intelligence] world,” Morgan Stanley analysts said in a letter to clients.
While the financial details of the deal have not been disclosed, analysts at JMP say it will likely be “smaller than Google’s deal,” which was $203 million over three years.
Reddit, which went public earlier this year, surprised investors with stronger-than-expected first-quarter earnings as it benefited from its AI ties and advertising deals.
In recent years, the site has become known as a medium for discussion and as an archive of information on the Internet. The meme stock phenomenon of 2021 played a key role in Reddit’s soaring popularity, given that the retail frenzy that drove up prices GameStop Corp (NYSE:) and AMC Entertainment Holdings Inc (NYSE:) largely originated on Reddit’s r/wallstreetbets forum.
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Several analysts have also noted that Reddit’s data is valuable for potentially training AI models.
Morgan Stanley analysts said the OpenAI partnership represents a “major step forward” in Reddit’s push to expand its data licensing business, adding that the deal is likely to generate $40 million to $50 million in “high-margin annual revenue” will yield.
“[W]We would expect a partial impact [Reddit] gain/[earnings before interest, tax, depreciation and amortization] in [the second quarter]with the impact of the first full quarter coming in [the third quarter],” said Morgan Stanley analysts.
Ambar Warrick contributed to this report.
