Investing.com -- D.A. Davidson analyst Wyatt Swanson on Tuesday initiated coverage of Reddit (NYSE: RDDT) with a Buy rating and a $200 price target, as he believes that the social media company’s sharp decline in share price this year has created a compelling entry point for investors.

Reddit shares have fallen roughly 28% year-to-date, weighed down by concerns over slowing user growth, the company’s negotiating position with large AI firms, and broader macro uncertainty.

Yet, Swanson argues that Reddit remains "incredibly under-monetized relative to peers" and that its platform — built around text-based community discussion rather than social graphs or short-form video — gives it a structural advantage as a data source for large language models (LLMs).

According to a study cited in the note, Reddit is the most-cited domain across major AI platforms including ChatGPT, Google AI Overviews, and Perplexity.

Looking ahead to first-quarter results, Swanson said traffic data from Similarweb points to Reddit beating daily active user (DAU) consensus estimates by roughly 1.3%, consistent with its average beat since going public.

“However, we think that expectations have come down given a choppier March, and there is a compelling opportunity for Reddit to outperform, especially as April TD Y/Y performance is the strongest we’ve observed in 12 months,” Swanson said.

The analyst also highlighted Reddit’s ongoing and pending data licensing deals with AI companies. The company’s existing contracts with Google and OpenAI are up for renewal in early to mid-2027, and Swanson’s base case assumes Reddit can renegotiate those agreements at 15 to 30% higher rates.

Separately, Reddit is pursuing legal action against Anthropic for allegedly scraping its content without authorization, and Swanson sees a settlement as the most likely outcome ahead of Anthropic’s public debut expected later in 2026.

“Ahead of initial public offerings, companies are more likely to settle ongoing litigation," and that a resolution could provide upside to 2026 and 2027 revenue and EBITDA estimates, Swanson said.

The analyst thinks that most catalysts for Reddit are likely to materialize in the second half of 2026 and into 2027, but believes that the stock’s year-to-date underperformance "represents an opportunity to BUY."