Reddit Sued Over AI Search Impact – What Investors Need to Know

Court: N.D. California

Case: 3:25-cv-05144

Reddit RDDT is facing a lawsuit from investors who say the company hid slowing user growth and the real impact of Google’s new AI Overviews on traffic. They claim that Reddit downplayed how AI-generated answers were cutting off search referrals, while continuing to offer overly optimistic revenue guidance.

Now that analysts are calling the search shift “permanent” and the stock has dropped nearly 18%, investors are pushing back.

What Really Happened With Google?

When Reddit it promised consistent growth and strong ad revenue, much of it supported by users who found Reddit threads through Google search.

But Google’s rollout of AI Overviews changed everything. These “zero-click” answers meant users got info from Reddit without ever visiting the site. Internally, Reddit knew traffic from logged-out users was dropping, especially in the U.S., a key ad market.

Traffic Down, Downgrades Up

On May 1, 2025, Reddit finally admitted user growth was slowing and hinted at volatility from search traffic. The stock dropped 4.2%. Then, analysts from Wells Fargo and Baird both slashed their ratings, saying Reddit faced “structural headwinds” from AI search.

RDDT plunged another 13.9% closing down 17.8% overall.

Why Investors Are Taking Action

Soon, investors filed a lawsuit claiming Reddit hid key risks to its user growth and ad revenue. They say Reddit knew traffic was dropping but concealed the scope of the impact until the damage was done.

What You Can Do Now

Now, if you bought Reddit stock and lost money, you can join this case to stay updated with the latest news and potential recovery.