The Finance Class

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Tag: AI

Cognizant Beats Revenue Expectations but Cuts Its 2026 Outlook as Clients Spend Less
Cognizant reported a solid third quarter, then lowered its outlook for the full year. That combination — good results today, more caution about tomorrow — is why the shares fell after the report.

The IT services company beat revenue expectations for the September quarter. But it said clients in healthcare and consumer-facing industries are holding back on discretionary spending, especially in the fourth quarter. So it narrowed its 2026 revenue growth forecast.

What Happened

Cognizant reported third-quarter 2026 results on October 29. Revenue rose 4.6% from a year earlier to $5.66 billion, or 4.8% in constant currency, which strips out the effect of exchange-rate moves. That was above the Wall Street consensus of $5.65 billion and above the midpoint of the company’s own guidance.

Adjusted earnings per share, which exclude some one-off items, rose 7.2% to $1.49, above the $1.46 consensus. GAAP earnings per share rose to $1.39 from $0.56 a year earlier. Net profit was $627 million, up from $274 million a year earlier, when profit was hit by a one-time, non-cash tax charge of $390 million.

Shares fell in premarket trading after the report, dropping 8.65% to $60.62, according to CNBC TV18’s coverage, even though revenue beat expectations. The market was reacting to the outlook, not the quarter itself.

Why It Happened

The main reason is discretionary spending. That is the extra work clients choose to start — new projects and upgrades — rather than the essential work they must keep running. When companies feel uncertain about the economy, that extra spending is often the first thing they delay.

Cognizant chief executive Ravi Kumar said macroeconomic conditions were largely stable in the third quarter, but uncertainty is weighing more on discretionary spending in the fourth quarter, particularly in healthcare and consumer-facing sectors.

The company also pointed to lower revenue from third-party resales and a bigger impact from holidays and furloughs in the fourth quarter than it had expected.

Bookings tell a similar story. Bookings in the September quarter fell 7% from a year earlier. Over the trailing 12 months, however, bookings rose 4% to $28.7 billion, and the company signed three large deals in the quarter, each worth more than $100 million in total contract value.

Key figures
- Q3 revenue: $5.66 billion, up 4.6% year over year (4.8% in constant currency)
- Q3 adjusted EPS: $1.49, up 7.2%; GAAP EPS: $1.39, up from $0.56
- Q3 net profit: $627 million, up from $274 million
- Operating margin: 15.4%, down 60 basis points; adjusted operating margin: 16.3%, up 30 basis points
- Full-year 2026 revenue growth guidance: narrowed to 4.0%-4.4% in constant currency, from 4.0%-5.5%
- Q4 revenue guidance: $5.49 billion to $5.57 billion (3.2%-4.7% constant-currency growth)
- Trailing 12-month bookings: $28.7 billion, up 4%
- Workforce: 359,900 at September 30, up 3,200 in the quarter
- Financial services revenue: up 12% in constant currency
Why It Matters

Cognizant’s quarter shows two different forces at work. Its financial services business is growing fast — up 12% in constant currency, its third straight quarter of double-digit growth. Its adjusted profit margin also improved to 16.3%, a four-year high, helped by its Project Leap efficiency programme.

But the parts of the business tied to healthcare and consumer spending are under pressure from regulatory uncertainty and cautious clients. That split is important for anyone trying to understand IT services right now: banks are still spending on technology, while other industries are waiting.

The guidance cut is also the third straight quarter in which Cognizant has lowered the top end of its full-year growth forecast. At the start of the year, the top end was 6.5%. Now it is 4.4%. That pattern matters more than any single quarter, because it shows management keeps finding the second half of the year harder than it first expected.

What Happens Next

The fourth quarter is the test. Cognizant expects revenue of $5.49 billion to $5.57 billion, which is below the $5.65 billion consensus. If clients restart discretionary projects early in 2027, as management hopes they might if the macro picture stabilises, the growth story could improve. If they do not, analysts may cut 2027 forecasts further.

Also watch Project Leap. Cognizant now expects total costs of $180 million to $250 million for the programme, down from an earlier $230 million to $320 million estimate, with $140 million to $160 million expected in 2026. The company says the programme should support further margin gains in 2027.

Final Thoughts

This was not a bad quarter. Revenue beat expectations, margins improved, and the company kept winning large deals. The problem was the outlook. When a company beats today but guides lower for tomorrow, investors usually focus on tomorrow — and that is exactly what happened here.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC TV18, https://www.tradingview.com/news/cnbctv:d111e8a7b094b:0/ ; Cognizant press release via Morningstar, https://www.morningstar.com/news/pr-newswire/20261029ny84050/cognizant-reports-third-quarter-2026-results

Related reading: AI disruption fears
October 31, 2026
Apple Passes Nvidia Again to Become the World’s Most Valuable Company
Apple is once again the world’s most valuable company. At Friday’s close, Apple was worth $5.03 trillion, just ahead of Nvidia at $4.93 trillion — the first time Apple has held the top spot since briefly doing so in late July.

The twist is that neither company rose on Friday. Both fell. Apple simply fell less, and in a brutal week for tech stocks, falling less was enough to take the crown.

What Happened

Apple shares fell 1.2% on Friday to close at $344.63, leaving the company with a market capitalisation of $5.03 trillion. Market capitalisation is just the share price multiplied by the number of shares — it is the market’s total price tag for the whole company.

Nvidia had a worse day. Its shares sank 4.2% to $204.64, taking its market value down to $4.93 trillion. That left a gap of roughly $90 billion between the two companies — a lead that could disappear in a single volatile session.

The change capped a bruising week for the artificial intelligence trade. The Nasdaq fell 2.9% on Friday and ended October down 5.3%, its worst month since March 2025. Chip stocks were hit especially hard: AMD, Qualcomm, Broadcom, Micron and TSMC all fell sharply on Friday as investors questioned how quickly AI spending will pay off.

Why It Happened

Investors are rotating towards companies whose cash flow looks steadier and whose spending looks more restrained. Apple fits that description better than most AI-heavy names right now. Its business is built on iPhone sales and services, which bring in regular cash, and it has spent far less aggressively on AI data centres than Microsoft, Alphabet, Amazon or Meta.

Apple’s shares are up about 27% in 2026, more than twice Nvidia’s gain, making it the best performer among the so-called Magnificent Seven tech giants this year. Apple first closed above a $4 trillion valuation in October 2025 and passed $5 trillion in July 2026, powered by steady iPhone demand and its services business.

Nvidia, by contrast, was the first company ever to reach $5 trillion, peaking near $5.7 trillion in May. Since then it has shed roughly $1 trillion in market value as investors cooled on AI chip stocks. That does not mean Nvidia’s business has collapsed — it is still enormously profitable — but its share price had run so far, so fast, that even a normal pullback looks huge in dollar terms.

Why It Matters

The top spot matters because it shows where investors feel safest at a given moment. When Nvidia leads, the market is betting on AI growth above all else. When Apple leads, the market is betting on steady cash, strong brands and products people buy every day.

It also shows how much market leadership can swing. Apple and Nvidia have swapped the top spot several times in recent months. A $90 billion gap sounds large, but for companies worth around $5 trillion, it is less than 2% — one good or bad day can flip it back.

What Happens Next

Apple’s next test comes quickly: the company reports its fiscal fourth-quarter results after the market closes on Monday, November 2. Investors will watch holiday demand following its recent iPhone and Mac launches, and whether its services business keeps growing.

Nvidia’s next earnings report will be watched just as closely, because it will show whether demand for AI chips is still growing at the pace investors expected. If either company surprises — good or bad — the top spot could change hands again within days.

Final Thoughts

It is tempting to treat “world’s most valuable company” as a permanent title. It is not. It is a snapshot of one day’s prices, and in volatile markets, snapshots change fast. What lasts longer is the lesson behind this one: when a market gets worried about spending and returns, it rewards the company that makes steady money over the company that promises future money — even if that future money could be much bigger. Apple won this round by falling less. That is not glamorous, but in a falling market, it counts.

Key figures:
- Apple: $344.63 per share on Friday, down 1.2%; market capitalisation $5.03 trillion
- Nvidia: $204.64 per share on Friday, down 4.2%; market capitalisation $4.93 trillion
- Gap: roughly $90 billion in Apple’s favour
- First time Apple has topped Nvidia since late July 2026
- Apple shares: up about 27% in 2026
- Nasdaq: down 2.9% on Friday; down 5.3% in October, worst month since March 2025
Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC reporting on Apple’s market capitalisation (October 2026); Bloomberg report “Apple Overtakes Nvidia to Become World’s Most Valuable Company” (via https://longbridge.com/en/news/303820664); AppleInsider report (https://appleinsider.com/articles/26/10/30/iphone-demand-sees-apple-topple-nvidia-as-most-valuable-company-again)

Related: Why Google Stock Crashed 12.6%: What Investors Need to Know
October 31, 2026
OpenAI Cuts Its Fundraising Target to $20 Billion as AI Stock Sell-Off Spooks Investors
Introduction

OpenAI, the company behind ChatGPT, has had to scale back its fundraising plans. The company is now seeking about $20 billion from investors instead of the $30 billion it originally targeted, according to a Financial Times report on Friday, October 30. The valuation it is asking for stays at $1.25 trillion, but the smaller target is a clear sign that even the biggest name in AI is feeling the chill from the recent stock market sell-off.

What Happened

OpenAI first pitched investors on a $30 billion fundraising round at a $1.4 trillion valuation in September. In October, the valuation in the talks was lowered to $1.25 trillion while the amount stayed at $30 billion. Now the amount has been cut too, by about a third, to around $20 billion. The Financial Times reported that OpenAI set Friday, October 30, as the deadline for investors to commit. Even so, the first close of the round is expected to raise less than $20 billion, because some investors reduced the amounts they planned to put in. The Wall Street Journal separately reported that OpenAI has so far raised less than half of its original $30 billion target. OpenAI has not commented on the reports. A consortium of investors from the United Arab Emirates, including the state-backed technology fund MGX, is expected to be the largest participant in the round. Investment firms including Coatue, Founders Fund, Sequoia Capital and Andreessen Horowitz are also expected to take part, and wealthy individual investors are expected to be offered a later tranche at the same $1.25 trillion valuation.

Why It Happened

The main reason is timing. The fundraising is happening in the middle of a sharp sell-off in technology stocks. Investors who were happy to pay almost any price for AI exposure a few months ago are now asking harder questions about when all the spending on data centres and chips will turn into profit. The numbers tell the story. The Nasdaq fell 2.9% on Friday and is now down 7.8% from its record closing high on October 6. Big AI-related stocks have fallen hard this week after earnings reports revived doubts about returns on AI investment. When public tech stocks fall, private fundraising gets harder too, because investors compare the price of a private deal with what similar companies are worth on the stock market.

Competition for money is the second reason. OpenAI has been rushing to lock in commitments before its rival Anthropic goes public in mid-November. Anthropic is reportedly aiming to raise as much as $100 billion at a $1.5 trillion valuation. Both companies are pitching many of the same investors, so money that goes to one is money the other cannot get.

Key Figures
- New fundraising target: about $20 billion, down from $30 billion.
- Valuation sought: $1.25 trillion, down from $1.4 trillion pitched in September.
- Expected first close: less than $20 billion, after some investors cut allocations.
- Amount raised so far: reportedly less than half of the original $30 billion target.
- Previous round: $122 billion closed in March at an $852 billion post-money valuation.
- Rival Anthropic’s planned IPO: as much as $100 billion at a $1.5 trillion valuation, expected mid-November.
- Nasdaq on Friday: down 2.9%, and down 7.8% from its October 6 record close.
Why It Matters

This matters because OpenAI is the company most investors point to when they talk about the AI boom. If even OpenAI has to accept less money than it wanted, it shows that the mood around AI has genuinely changed. It does not mean AI is finished. It means the phase where investors funded AI companies at any price is over, at least for now. It also matters for the money OpenAI needs. Building and running AI models is extremely expensive. OpenAI needs huge amounts of cash to buy computing power and build data centres. A smaller round means less room for error, and it puts more pressure on the company to show that its spending produces real revenue. For ordinary investors, the story is a useful warning sign. Private valuations often move after public markets move, not before. When a company like OpenAI trims its plans, it is usually a sign that the wider market has already turned cautious.

What Happens Next

The first thing to watch is the final size of the first close. If it lands well below $20 billion, that would be a stronger signal of weak demand. If later tranches, including the planned offer to wealthy individuals, fill the gap, the story looks more like a delay than a setback. The second thing to watch is Anthropic’s IPO in mid-November. If Anthropic also has to accept a lower price or a smaller raise, it will confirm that the whole AI sector is repricing. If Anthropic sails through, OpenAI’s cut will look more like a company-specific problem. The third thing is OpenAI’s own path to the stock market. The company had previously put off IPO plans until 2027. How this private round ends will shape what price it can ask for when it eventually lists.

Final Thoughts

A cut from $30 billion to $20 billion is still a very large fundraising round. OpenAI is not in trouble. But the direction of travel matters. A month ago, investors were competing to get into this round. Now the company is accepting less. That shift, from a sellers’ market to a buyers’ market in AI funding, is the real story here. The AI boom is not over, but the easy-money phase of it clearly is.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC TV18, https://www.tradingview.com/news/cnbctv:80c71e14d094b:0/ ; CoinDesk, https://www.coindesk.com/business/2026/10/30/openai-reportedly-cuts-fundraising-target-amid-ai-jitters
October 31, 2026
Anthropic’s Road to the Stock Market Just Got Rockier as AI Spending Worries Investors
Introduction

Anthropic, the AI company behind the Claude chatbot, picked a difficult week to head toward the stock market. Just days after it released its IPO prospectus, Microsoft, Google and Amazon reported results that added to investors’ worries about how much money the AI boom is eating up.

What Happened

Anthropic released its IPO prospectus on Monday, October 26, 2026. The document showed a net loss of $80 billion for the first half of the year, hundreds of billions of dollars in future computing commitments, and more than 90 pages of risk factors. The company plans to list on the Nasdaq under the ticker ANT, but it has not yet set a price range, share count or fundraising size.

Then the big tech results landed. Microsoft lowered its capital spending forecast for the year to $170 billion, down from $175 billion. Alphabet, Google’s parent, kept guidance for spending of up to $205 billion. Amazon repeated a forecast of roughly $220 billion. All three figures came in below what analysts had expected, according to CNBC.

Cash flow told an even sharper story. Amazon reported negative free cash flow for a second straight quarter, with a $42.4 billion outflow over the past 12 months. Google reported negative free cash flow of $9.1 billion, and its stock fell almost 13% on Thursday. Microsoft stayed cash-flow positive at $18.6 billion, but that was down sharply for a second straight quarter, and the company announced plans to raise $25 billion in bonds.

The wider market felt it too. The Nasdaq Composite fell 2.9% on Friday, marking its first three-week losing streak since March. Nvidia traded lower, and Intel’s weak forecast sent its stock to its steepest drop since the 1970s.

Related reading: Nasdaq Ends October With Its Worst Month Since March 2025 as Tech Sell-Off Deepens

Why It Happened

Building AI systems is extremely expensive. Companies need huge data centers, powerful chips and enormous amounts of electricity. Anthropic’s prospectus makes that cost visible: hundreds of billions of dollars promised for computing power in the years ahead.

Investors are now asking a simple question: when does all this spending turn into profit? Cloud revenue at Microsoft, Google and Amazon beat analysts’ expectations — Google’s cloud revenue more than doubled from a year earlier — but that was not enough to calm the market. When even strong cloud growth comes with negative cash flow, investors start to worry about how the bills get paid.

The IPO market has also gone quiet. It has largely been frozen since SpaceX’s record offering in June. Other companies, including Oura, Firmus and SK Hynix’s Solidigm unit, have recently delayed or dropped IPO plans. As Futurum Group CEO Daniel Newman put it, “Anthropic is the IPO market at this point.”

Key Figures
- Anthropic: $80 billion net loss in the first half of 2026; $16.3 billion in first-half revenue (per its filing)
- Anthropic: hundreds of billions of dollars in future computing commitments
- Microsoft: capital spending forecast cut to $170 billion from $175 billion; free cash flow $18.6 billion; $25 billion bond plan
- Alphabet: spending guidance up to $205 billion; negative free cash flow of $9.1 billion
- Amazon: spending forecast roughly $220 billion; $42.4 billion free cash outflow over 12 months
- Nasdaq Composite: down 2.9% on Friday, October 30
Why It Matters

Anthropic’s IPO is a test for the whole AI sector. If one of the most important AI companies struggles to convince public investors, it could make fundraising harder for others. It could also force AI companies to show clearer paths to profit instead of just growth.

For ordinary investors, the lesson is about balance. AI is real technology with real revenue growth. But growth funded by massive spending and debt carries risk, and this week showed how quickly excitement can turn into doubt when cash flow goes negative.

What Happens Next

Anthropic still has to fill in the missing pieces of its offering — price, share count and size — and investors are still waiting for its third-quarter financials. Oracle, meanwhile, said it will limit additional fundraising in coming years to $20 billion and turn cash flow positive in the second half of its next fiscal year, a sign that even big AI spenders feel pressure to show discipline.

Watch the next round of results and Anthropic’s pricing decision. If the IPO prices well, it could reopen the market for other tech listings. If it struggles, the freeze could last longer.

Final Thoughts

Anthropic is not in trouble because its technology failed. It is facing a market that has started asking harder questions about AI spending. That is a healthy question, even if it makes the road to the Nasdaq bumpier. The companies that answer it with real cash flow, not just big promises, will be the ones investors trust.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC, “Anthropic’s path to the Nasdaq just got a lot bumpier” (https://www.cnbc.com/2026/10/31/anthropic-ipo-ai-spending.html); Anthropic S-1 filing coverage (revenue of $16.3 billion in H1 2026, Nasdaq ticker ANT).
October 31, 2026
ServiceNow Shares Plunge 27% to Worst Day Ever as AI Disruption Fears Hit Software

Introduction

ServiceNow shares fell 27% on Thursday, October 29, their worst single day ever. The enterprise software company reported results that were mostly solid, but investors focused on one disappointment, and the stock paid the price.

What Happened

ServiceNow reported third-quarter revenue of $4.11 billion, up more than 20% from a year earlier and slightly above the roughly $4.10 billion analysts expected. But adjusted earnings came in at $1.00 per share, below the $1.02 forecast.

The bigger problem was the outlook. ServiceNow forecast growth of 18.5% in its current remaining performance obligations, a measure of contracted revenue for the coming months, below what Wall Street expected and slower than the previous quarter. The shares closed Thursday at $109.67, down from $150.13 the day before, and fell further on Friday to close the week at $105.12, a weekly drop of about 34%.

ServiceNow was not alone. Fortinet, a cybersecurity company, fell 20% the same day after its own results. Other software stocks, including Salesforce, Snowflake and Workday, also fell during the week as the whole sector sold off.

Why It Happened

The market fear has a nickname: the “SaaSpocalypse.” The idea is that AI tools could replace the kind of business software that companies like ServiceNow sell. If AI can do the work directly, why pay for a software subscription?

ServiceNow’s own numbers argued against that fear. The company raised its full-year 2026 subscription revenue outlook to $15.78–15.79 billion, and said net new AI contract value jumped 65%. It also raised its target for AI contracts to at least $1.7 billion for the year.

But investors were not in a listening mood. ServiceNow’s finance chief pushed back on the reaction, arguing that the backlog metric is a nuanced accounting measure that does not capture all of the company’s momentum. Wall Street mostly stayed optimistic: Oppenheimer kept a Buy rating on the stock, arguing that ServiceNow’s AI momentum counters the idea that it is being disrupted, even if growth is not speeding up yet.

Why It Matters

ServiceNow’s fall shows how unforgiving this market has become for software stocks. A company can grow revenue more than 20%, raise its outlook, and still lose more than a quarter of its value in a day because one forecast number disappointed.

It also shows how the AI story cuts both ways. Companies building AI tools are being rewarded, but companies that might be replaced by AI tools are being punished, even when their own AI business is growing fast. Investors are sorting the software sector into winners and losers, and they are doing it quickly.

For context, ServiceNow’s shares have now lost 41.5% since October 28, 2025, while the S&P 500 gained 13.3% over the same period, according to Trefis analysis of closing prices.

What Happens Next

ServiceNow reports fourth-quarter results in January 2027. Between now and then, investors will watch whether its AI contracts turn into real revenue growth, and whether the backlog growth rate steadies or keeps slowing.

The wider software sector faces the same test. If AI spending keeps rising but software earnings keep disappointing, the sell-off could continue. If companies show that AI is adding to their business rather than replacing it, the sector could recover.

Final Thoughts

ServiceNow’s story is a useful warning for investors. A single number in a report can matter more than the whole picture, especially when the market is already nervous. The company’s AI business is growing, its revenue outlook went up, and analysts still mostly like the stock. None of that stopped a 27% fall. In a market like this, expectations are everything, and meeting them is not always enough.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC coverage “ServiceNow shares plunge 27% to worst day ever after earnings revive AI disruption fears”: https://www.cnbc.com/2026/10/29/servicenow-now-earnings-q3-2026.html; Trefis analysis (https://www.trefis.com/stock/now/articles/621573/what-is-behind-the-move-in-servicenow-stock/2026-10-30) and Motley Fool (https://www.fool.com/investing/2026/10/29/servicenow-stock-just-plunged-more-than-20-in-a-single-day-here-s-what-it-did-after-its-other-biggest-drops/).

October 31, 2026
JPMorgan Turns Bullish on Palantir With a $262 Target Ahead of Earnings
Introduction

JPMorgan just gave Palantir a strong vote of confidence. The bank started coverage of the AI software company with an Overweight rating and a 12-month price target of $262, about 33% above its Wednesday closing price.

What Happened

JPMorgan initiated coverage of Palantir on Thursday, October 29, with an Overweight rating. In simple terms, Overweight means the bank expects the stock to do better than the market average. The $262 target is roughly one-third higher than where the shares closed on Wednesday.

JPMorgan also placed Palantir on its Positive Catalyst Watch ahead of the company’s third-quarter results, which are due after the market closes on Monday, November 2.

Key figures
- JPMorgan rating: Overweight (new coverage)
- JPMorgan 12-month price target: $262, about 33% above the Wednesday close
- Third-quarter results due: Monday, November 2, after the market close
- Analyst consensus for Q3 revenue: $2.18 billion, up about 85% year over year
- Palantir’s own Q3 revenue guidance: $2.160 billion to $2.164 billion
- Palantir’s full-year 2026 revenue guidance: $8.150 billion to $8.158 billion
- Wall Street view: 26 of 35 analysts tracked by LSEG rate the stock Buy or Strong Buy
- Recent run: shares up 59% in the past three months, though they have trailed the S&P 500 so far in 2026
Why It Happened

JPMorgan analyst Brian Essex argued that big companies are moving past the early stage of AI, where they were just deciding how to use it. Now they want to see real, measurable returns from their AI spending. In his view, Palantir is already delivering those returns by helping clients run their businesses better, and its growth is accelerating.

Palantir sells software that helps governments and companies organise large amounts of data and make decisions from it. As AI becomes a bigger part of everyday business, JPMorgan believes demand for that kind of platform will keep growing.

Why It Matters

Analyst ratings do not guarantee a stock will rise, but a new Overweight call from a major bank still matters. It can bring fresh attention to a stock, especially just before earnings. It also shows a split in Wall Street opinion: while JPMorgan is bullish, other analysts remain cautious about Palantir’s high valuation, with at least one firm holding a sell rating and a much lower target.

For regular investors, the useful lesson is not the target price itself. It is the question behind it: are companies actually making money from AI, or just spending money on it? Palantir’s results on November 2 will be one test of that question.

What Happens Next

All eyes turn to Monday’s earnings report. Investors will compare revenue with the $2.18 billion consensus and Palantir’s own guidance, and they will listen closely to what management says about the rest of the year. A strong outlook could support JPMorgan’s bullish view. A weak one could quickly reverse it.

Final Thoughts

JPMorgan is betting that Palantir is moving from AI promise to AI profit. On Monday, the numbers will show whether that bet is on track.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC coverage of JPMorgan’s Palantir call | Barchart, “Ahead of Palantir Earnings,” Oct. 30, 2026.
October 30, 2026
Reddit Shares Drop 20% as AI Search Eats Into Its Traffic
Reddit beat earnings expectations on Thursday, October 29, and its stock still fell hard. Shares dropped about 18% in after-hours trading and were down more than 20% in premarket trading on Friday, October 30.

The reason was not the past quarter. It was a warning about the future, and about how artificial intelligence is changing the way people find information online.

What Happened

Reddit’s third-quarter revenue rose 53% from a year earlier to $895 million, above the roughly $878 million analysts expected. Adjusted earnings came in at $1.40 per share, also above expectations. Advertising revenue grew 54% to $847 million.

Daily active users, the number of people who visit Reddit on an average day, grew 12% to 130.3 million, but that was below the roughly 134 million analysts expected. In the United States, daily users actually fell 2% to 50.7 million, the first decline since Reddit went public in 2024. International users grew 24%, which softened the blow.

For the fourth quarter, Reddit expects revenue of $1.00 billion to $1.03 billion. The middle of that range, $1.015 billion, was below the $1.05 billion analysts had forecast.

But the number that scared investors most was about traffic. Reddit said search referrals, the visitors who arrive by clicking a link in a search engine, fell by more than 1 million per week on average in October. If that pace continues, the company warned, daily users could fall by a low double-digit percentage in the fourth quarter, from the current base of about 130 million.

Why It Happened

Reddit’s chief executive, Steve Huffman, blamed Google’s shift to AI-powered search. When people search for something today, they often get an AI-generated answer at the top of the page, and they never click through to the website. That means fewer visitors for sites like Reddit, even though their content is often used to build those AI answers.

Related reading: Why Google Stock Crashed 12.6%: What Investors Need to Know

Huffman said search referral traffic was down meaningfully in the third quarter, and the decline sped up later in the quarter. He argued that AI search “does not drive traffic, not for us and not to anybody,” and that AI answers cannot replace real communities of people.

Reddit is also changing how its site works. The company plans to test requiring users to log in to see most content, starting in selected markets outside the United States in the fourth quarter. The idea is to reduce data scraping, where other companies collect Reddit’s posts without permission, and to focus on logged-in users, who bring in more than 80% of its advertising money. But a login wall could also put off casual visitors, which is a risk the company will be testing carefully.

Think of it like a public noticeboard in a town square. For years, anyone walking past could read it. Now, the town has built a wall with a gate, and an AI assistant outside summarises the notices for passers-by. Fewer people walk in, even though the notices inside are just as useful.

Key Figures
- Q3 revenue: $895 million, up 53% (expected: about $878 million)
- Q3 adjusted earnings per share: $1.40 (expected: about $1.35)
- Advertising revenue: $847 million, up 54%
- Daily active users: 130.3 million, up 12% (expected: about 134 million)
- US daily users: 50.7 million, down 2%
- Q4 revenue forecast: $1.00 billion to $1.03 billion (expected: about $1.05 billion)
- Search referrals in October: down more than 1 million per week on average
- Possible Q4 user impact: a low double-digit percentage decline if the trend continues
Why It Matters

Reddit’s warning matters far beyond Reddit. If AI search answers keep people from clicking through to websites, every site that depends on search traffic faces the same problem: news publishers, forums, blogs and small businesses. It raises a big question about the internet’s business model. If AI companies use content created by others but send fewer visitors back, how do those creators earn money?

It also matters for Reddit itself. Advertising is its main source of income, and advertisers pay for attention. Fewer visitors, especially in the United States, could mean slower advertising growth, even if revenue is still rising fast today.

What Happens Next

Investors will watch the login test closely. If it protects Reddit’s content without driving users away, it could become a model for other platforms. If it shrinks the audience, the company may need to rethink it. The fourth-quarter user numbers, due early in 2027, will show whether the warning came true.

Reddit also has content licensing deals with Google and OpenAI, which pay for the right to use its posts to train AI systems. Those deals are up for renewal, and the company gave no update on them in this report. How those talks go could matter as much as the traffic numbers.

Final Thoughts

Reddit’s quarter shows a strange new reality: a company can grow revenue by 53% and still lose a fifth of its value in a day, because investors are worried about where its visitors will come from next year. The AI search shift is not just a technology story. It is a business story, and Reddit is one of the first big companies to put a number on what it costs.

Disclaimer: This article is for educational and informational purposes only and does not constitute financial advice.

Sources: CNBC, “Stocks making the biggest moves premarket: Intel, Amazon, Reddit, Chevron & more” (https://www.cnbc.com/2026/10/30/stocks-making-the-biggest-moves-premarket-intc-amzn-rddt-cvx.html); Reuters, “Reddit puts logged in experience first as Google AI hits traffic” (https://mymixfm.com/2026/10/29/reddit-posts-search-traffic-declines-will-push-visitor-sign-ins-to-curb-data-scraping/)
October 30, 2026