Finding stocks with significant potential can be challenging, but it’s certainly not impossible. One promising area to explore is the tech sector, home to many innovative companies.

Today, we’ll focus on a stock that debuted just over a year ago and has already shown a strong performance: Reddit (RDDT).

Why Reddit is Set for Big Returns

To understand Reddit’s potential, it’s important to look at how its business operates. The company runs an online social media platform where users share content across various boards, organized by specific themes.

For instance, musicians can post or read content in communities dedicated to musical genres, instruments, or artists. Sports fans engage with posts related to their favorite teams, sports, or players. Popular subreddits cover broad topics like “humor” and “askreddit,” boasting tens of millions of subscribers. As of the latest quarter ending March 31, Reddit reported 108 million daily active unique users.

Reddit capitalizes on this vast user base and the influx of user-generated content in a few key ways. First, it generates revenue primarily through advertising, with about 90% of its income coming from ad sales—similar to other social media platforms. For example, Meta Platforms earns roughly 97% of its revenue from ads.

Second, the extensive user-generated content provides a valuable asset: a wealth of dynamic data. While this constant stream of comments, images, and videos may seem less useful to the everyday user, it’s a goldmine for the artificial intelligence (AI) sector, which relies on real-world data for training purposes. AI companies are willing to pay for access to this data.

For instance, Alphabet has already signed a data licensing agreement with Reddit worth an estimated $60 million annually. This AI licensing revenue could become increasingly important for Reddit.

How Reddit Stock Could Surge More Than 600% in 10 Years

With a large user base and abundant data to license, how can Reddit achieve a 600% return in just a decade? The key lies in scaling its operations.

To illustrate, let’s look at Meta Platforms’ stock performance over the past ten years. In May 2015, Meta (then known as Facebook) shares were priced around $80. Currently, they are trading at about $650, marking a gain of approximately 700%. During that same period, Meta averaged yearly revenue growth of about 31%.

In contrast, Reddit’s revenue is growing at an impressive 61% year over year—roughly double Meta’s growth over the last decade. Given that Reddit starts with a smaller revenue base, it could potentially grow its revenue at an even faster rate than Meta did.

Additionally, with a market cap of under $20 billion, Reddit’s stock has ample room for growth, assuming it can continue to expand its user base and revenue.

That said, Reddit is still a young, growth-focused company, which may not fit every investor’s portfolio. However, for those willing to hold for the long term, Reddit is definitely worth considering.

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