Reddit (RDDT.US) will be included in the S&P 500 index! The stock price surged after hours.

S&P Dow Jones Indices announced on Thursday that Reddit (RDDT.US) will be added to the S&P 500 Index through a non-routine adjustment next week. Following this news, Reddit's stock surged nearly 12% in after-hours trading on Thursday. S&P Dow Jones Indices stated that Reddit will officially be included in the benchmark index before the market opens on August 18. It will replace AvalonBay Communities (AVB.US), which is being acquired by another S&P 500 component, Equity Residential (EQR.US). When a company is added to a major index, its stock price usually rises because fund managers need to adjust their portfolios to reflect the new index composition. As the scale of passive investment continues to grow, the significance of being included in the S&P 500 Index has also increased. According to the inclusion criteria from July, companies must have a market capitalization of at least $22.7 billion and meet requirements for profitability, liquidity, and float to qualify for the index. Since its public listing in March 2024, Reddit has experienced steady revenue growth. The company is currently investing in advertising technology, hoping to expand its market share in the digital advertising space, which is currently dominated by industry giants like Meta Platforms (META.US) and Alphabet Inc. Class C (GOOGL.US). At the end of July, Reddit's earnings report showed revenue growth exceeding 60% for the eighth consecutive quarter. The data indicated that revenue grew by 61% year-over-year to $805 million, and net profit attributable to shareholders increased by 183% year-over-year to $253 million, showcasing impressive overall financial performance. Advertising is currently Reddit's primary source of revenue, but, amid the AI boom, investors are increasingly eager to see a shift in revenue structure towards AI training data transactions. The large volume of user posts accumulated by Reddit makes it an important platform for marketers to reach consumers, as discussions on specific topics or companies already occur in these online communities. Despite Reddit's agreements worth hundreds of millions of dollars with OpenAI and Googleboth of which use proprietary data from Reddit forums to train AI modelsthe company did not announce any new data licensing agreements in its latest earnings report, disappointing investors who were hoping for a change in revenue sources. This led to one of the most severe drops in the stock's history since going public. Reddit's stock plummeted nearly 21% on July 31 after the earnings report, marking a total decline of 31% for the year. Additionally, Reddit's CEO Steve Hoffman issued a warning regarding fluctuations in current search traffic. He noted that recently there has been significant volatility in the number of visits from search engines, primarily due to the accelerated application of AI in the search field. Hoffman specifically mentioned the substantial impact of the AI summary feature introduced by Alphabet Inc. Class C on the industry landscape. The AI summary system aggregates and presents information directly on the search results page, allowing users to access content without clicking through to the original platform. This change has led to a noticeable decrease in direct visits to content platforms like Reddit. For a platform that has traditionally relied heavily on search engine traffic to generate advertising revenue through active users, this is undoubtedly a signal to watch.