Investors sue Reddit over Google AI's impact on stock

Google's AI overview is ruining Reddit's business, investors claim in a putative securities class action filed in San Francisco federal court.

The complaint accuses Reddit executives of misleading stock purchasers about the impact Google's AI-powered search overview is having on website traffic.

The investors claim that Google search users are beginning to rely on the overview, instead of investigating their searches further by visiting sites like Reddit to answer their questions. The plaintiffs claim that the developments by Google caused the company's stock price to dip by 4.2% in a single day following its first-quarter earnings report on May 1.

The plaintiffs claim that the downtick in traffic has resulted in a loss of ad revenue that business analysts warned company executives about but was never released to the public. Of Reddit's first-quarter 2025 revenue, 91% came from advertising, according to the company's SEC filings. Tamraz Jr. v. Reddit, Inc., 3:25-cv-05144 (N.D. Cal. filed June 18, 2025).

Scott Edelsberg of Edelsberg Law PA in Aventura, Florida, lead attorney for the stockholders, argued in the complaint, "Defendants made materially false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of Reddit's common stock and operated as a fraud or deceit on Class Period purchasers of Reddit's common stock by materially misleading the investing public."

Reddit's press office could not be reached for comment Thursday. In the company's Feb. 12 letter to shareholders regarding Q4 earnings, Reddit acknowledged Google Search's AI developments caused "volatility" but claimed that it was not "unusual."

However, according to the transcript from the company's May 1 earnings call, Google's developments caused more disruption than Reddit previously anticipated. In response to a question during the call, one of the defendants in the new lawsuit, Steven Huffman, co-founder and CEO of Reddit, said that the future could be "more bumpy than usual."

"Remember, we're an open platform, and we want people to find Reddit's content in search. Being open drives awareness and visibility, but it can also create variability. We do expect some bumps along the way from Google because we've already seen a few this year. This is expected in any year, but given that the search ecosystem is under heavy construction, the near-term could be more bumpy than usual," Huffman said.

"But the short-term bumps don't affect our long-term strategy or opportunity. We're in control of our own destiny. I think the question behind the question is, is there a long-term risk to Reddit here? And in my view, the answer is no. In fact, I think there's opportunity. There's no doubt large language models will evolve search on the Internet. We can all see that. It's awesome," Huffman added.

Reddit is involved in separate litigation over large language AI models. On June 4, the company sued Anthropic over its AI chatbot Claude, claiming Anthropic illegally scraped data from Reddit's website to train its large language model powering Claude. Reddit Inc v. Anthropic PBC, CGC-25-524892 (S.F. Super. Ct. filed June 4, 2025).