Reddit delivered a blockbuster second quarter that beat Wall Street expectations on nearly every financial metric—yet the company's stock tumbled more than 10% in after-hours trading. The culprit: mounting investor anxiety that artificial intelligence is quietly eroding one of Reddit's primary growth engines, search traffic. Main Developments Total revenue reached $805 million, a 61% year-over-year jump, while net income hit $253 million—up 183% from the same period last year. Both figures surpassed analyst estimates. The company also guided for $860 million to $870 million in third-quarter revenue with healthy pre-tax earnings, again beating expectations. CEO Steve Huffman's separate letter to shareholders introduced a troubling caveat. "Search referrals were choppy in the quarter, and traffic was more volatile later in the quarter," Huffman wrote, though he added that "the bigger picture is unchanged: the commercial business is strong." Read also: Cloud Hosts Reap AI Rewards While Labs Face Investor Skepticism U.S. daily active unique users slipped from 53.5 million in Q1 to 53.2 million in Q2, a decline that drew sharp questioning from analysts during the earnings call. One Wall Street analyst bluntly told executives, "Your stock is down sharply because there is just a sense from investors that you have a—I don't want to, to be blunt—a user problem, especially in the U.S." Background In 2024, Reddit signed a data-licensing agreement with Google, allowing the search giant to train its AI models on Reddit content. That partnership now appears to be a double-edged sword: while it generated revenue, Google's deployment of AI-powered summaries is reportedly siphoning audience away from Reddit itself. The logged-out user base—visitors who arrive via search engine links without creating accounts—is particularly exposed. Analysts worry that as search engines increasingly serve AI-generated answers instead of directing users to source websites, Reddit will lose a critical funnel for new users and ad impressions. Why It Matters Reddit's financial health has long relied on its ability to convert search-engine visitors into registered, logged-in users who generate ad revenue. If AI summaries permanently reduce that traffic funnel, the company may need to fundamentally rethink its growth strategy—or accept slower U.S. user expansion. The stakes extend beyond Reddit. The company's experience offers an early case study of how AI is reshaping the economics of content platforms that depend on search referrals. Other publishers and forums face similar pressures as Google and other search engines integrate generative AI into their core products. What's Next Huffman faces a critical decision on whether to renew Reddit's data-licensing deal with Google. During the earnings call, he declined to tip his hand, saying only, "Our relationship with them actually predates the formal kind of data licensing agreements… we will make sure that we're maximizing the value for Reddit." The company must also address the U.S. user decline. Huffman expressed confidence that Reddit's core value proposition—"communities and conversation"—would continue to attract users organically. Whether that faith translates into reversing the logged-out traffic trend remains the central question for investors heading into the second half of 2026.