What Happened?
A number of stocks fell in the morning session after markets became increasingly wary of high valuations following a significant AI-driven rally. The tech-heavy Nasdaq fell approximately 1.4% as a wave of caution swept through the market.
A key example of this trend is Palantir Technologies, which saw its shares drop around 7% despite reporting record quarterly results that surpassed analyst estimates and raising its full-year revenue outlook. This seemingly contradictory movement highlighted a broader sentiment shift. Investors appeared to be engaging in profit-taking, concerned that the recent surge in AI-related stocks had led to stretched valuations. This broader market caution affected high-growth technology companies that had previously surged on AI optimism but faced increased scrutiny, signaling a potential cooling-off period for the sector. Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Online Retail company Revolve (NYSE: RVLV) fell 5%. Is now the time to buy Revolve? Access our full analysis report here, it’s free for active Edge members.
- Gig Economy company Lyft (NASDAQ: LYFT) fell 3.9%. Is now the time to buy Lyft? Access our full analysis report here, it’s free for active Edge members.
- Social Networking company Reddit (NYSE: RDDT) fell 7%. Is now the time to buy Reddit? Access our full analysis report here, it’s free for active Edge members.
- Online Marketplace company Etsy (NASDAQ: ETSY) fell 3.6%. Is now the time to buy Etsy? Access our full analysis report here, it’s free for active Edge members.
- Social Networking company Snap (NYSE: SNAP) fell 3.3%. Is now the time to buy Snap? Access our full analysis report here, it’s free for active Edge members.
Zooming In On Reddit (RDDT)
Reddit’s shares are extremely volatile and have had 65 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 4 days ago when the stock gained 13.7% on the news that the company reported third-quarter results that significantly beat Wall Street's expectations and provided a strong forecast for the fourth quarter. The social media company's revenue rose 67.9% year-over-year to $584.9 million, surpassing analysts' estimates of $550.4 million. Earnings also impressed, coming in at $0.80 per share, well above the $0.52 that experts had predicted. This growth was supported by a massive 141% year-over-year increase in domestic daily active visitors, which reached 116 million. Looking ahead, the company projected fourth-quarter revenue of around $660 million, also above market expectations. Following the strong report, Wall Street sentiment was positive, as the company's results and optimistic guidance showcased strong business momentum.
Reddit is up 13.8% since the beginning of the year, but at $188.74 per share, it is still trading 30.3% below its 52-week high of $270.71 from September 2025. Investors who bought $1,000 worth of Reddit’s shares at the IPO in March 2024 would now be looking at an investment worth $3,743.
P.S. In tech investing, "Gorillas" are the rare companies that dominate their markets—like Microsoft and Apple did decades ago. Today, the next Gorilla is emerging in AI-powered enterprise software. Access the ticker here in our special report.
