Reddit's AI Data Licensing Narrative Crumbles as YouTube Overtakes for AI Model Training

What happened

Reddit shares are tumbling sharply after an Adweek report indicated YouTube has become the primary data source for AI models, surpassing Reddit's platform. This directly undermines Reddit's strategic bet on monetizing its unique user-generated content corpus through high-margin AI data licensing deals with firms like Google and OpenAI. The DeepValue master report had already flagged AI data licensing as a fragile, optional revenue stream, contributing only 6-7% of total revenue and facing legal and competitive overhangs. With YouTube's dominance, Reddit's bargaining power and ability to secure future licensing agreements are now in serious doubt, eroding a key pillar of its growth narrative. This development amplifies existing risks, such as Google AI Overviews reducing search traffic, potentially accelerating the bear case of slowed user growth and sharp valuation compression.

Implication

The shift to YouTube as the top AI data source immediately pressures Reddit's small but high-margin licensing revenue, casting doubt on a key growth driver that investors had priced in. Market sentiment, which had grown crowded around Reddit's AI narrative, is likely to sour, leading to increased volatility and potential sell-offs as confidence wanes. Reddit's reliance on data deals to justify premium multiples becomes more precarious, forcing a reassessment of long-term revenue durability and margin sustainability. Management's efforts to offset external threats, such as internal AI search tools like Reddit Answers, now face heightened scrutiny and urgency to deliver results. Overall, this tightens the timeline for Reddit to prove its ad growth can withstand shocks, increasing the risk of multiple compression and aligning more closely with the bear scenario outlined in the DeepValue report.

Thesis delta

This news reinforces the bear case from the DeepValue report, where AI data licensing proves less durable and external dependencies weaken growth. Specifically, it shifts probability weight towards the bear scenario, as YouTube's overtaking reduces Reddit's data exclusivity and bargaining power, potentially accelerating user and monetization slowdowns. Investors should lower growth assumptions for data licensing and prepare for a faster de-rating of valuation multiples if ad momentum falters.