Reddit's (RDDT) renewal of its content licensing deal with Alphabet's (GOOG) Google isn't due until early 2027, though the chances of a favorable outcome may be improving, RBC Capital Markets said Tuesday in a report.

Google has rolled out updates to its AI Search features that improve link visibility and make it easier for users to see and click through to original sources, RBC said. One change places links directly inside AI responses next to relevant text, which may more clearly attribute information to publishers such as Reddit, the report said.

With the renewal approaching, bullish investors are looking for a significant increase to Reddit's current $60 million-a-year agreement with Google, with expectations ranging from $300 million to $500 million annually due to Reddit's "internet-leading citation share." RBC said it is skeptical of that outcome, noting it could set an unattractive precedent for Google's content acquisition costs.

RBC rates Reddit stock as sector perform, citing slowing daily active user growth. Better visibility on traffic improvements may be more constructive, and a pickup in referral traffic leading "would obviate the bear case and cause a rerating," the report said.

RBC has a $250 price target on the stock.

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