I've Changed My Mind on This Beaten-Down Growth Stock. The AI Supercycle Bears Got It Wrong.

Over the last few months, investors have seen numerous tech stocks take a beating. This has occurred amid high valuations and uncertainty as to where the rise of artificial intelligence (AI) will affect specific tech-related businesses.

This situation reminds me of the state of Reddit (NYSE: RDDT) stock. Although I liked its approach, the social media stock had risen beyond its fundamentals.

Now, with the stock down 50%, investors may want to take another look at the stock, and here's why.

Image source: Getty Images.

The state of Reddit stock

Since its debut in March 2024, Reddit stock has been volatile, but it has been on an upward trajectory, generally speaking. In slightly more than two years, the stock has gained almost 300% even after the aforementioned sell-off.

Reddit has stood out with its unique approach to social media, serving as a "community of communities." Users log on to one of its more than 100,000 communities, making it a source of information on a variety of topics. Moreover, Reddit forums often come up on AI-driven searches. This means that rather than AI replacing Reddit, it is the No. 1 source cited in AI answers, making it all the more critical in today's tech world.

As of the end of 2025, more than 121 million daily active users log on to the site. This allows Reddit to sell space for digital ads while earning revenue from premium subscriptions and data licensing. Still, at its peak last September, its price-to-sales (P/S) ratio had surged as high as 29. This made buying the stock risky at that time and probably emboldened the AI supercycle bears.

However, investors should take note of the rapid growth of its financials. In 2025, revenue of $2.2 billion increased by 69% yearly. Additionally, costs and expenses actually fell over that period. With that, it earned a $530 million profit for the year, far above its $484 million loss in 2024.

Admittedly, its outlook calls for that growth to slow, but remain robust. Analysts predict 43% revenue growth in 2026 before it slows further to 30% the next year.

Fortunately, its valuation looks increasingly favorable. It has a price-to-earnings (P/E) ratio of 51, and with its growth, its forward P/E ratio stands at just 20. Also, the P/S ratio now stands at just 12, a level which could indicate that it may finally be time to buy the dip.

Moving forward with Reddit stock

Amid the stock's pullback, Reddit looks like a buy. Indeed, its valuation is lower but not so low that one might call it rock bottom. Given the recent volatility in the market, investors should probably buy this stock through dollar-cost averaging (DCA) rather than purchasing it in one large block.

Nonetheless, Reddit plays a valuable role in social media, and AI has reinforced that role. Considering its rapid growth and falling valuation, investors are likely to earn outsized returns once market conditions improve.

Will Healy has no position in any of the stocks mentioned. The Motley Fool recommends Reddit. The Motley Fool has a disclosure policy.