Good morning Pros! In this issue, we’ll look at Netflix and see if it’s a buy and discuss Nvidia, which is our Investment of the Week.
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📊 Stock analysis: Is Netflix a buy?
We last covered Netflix in January when it was under $1,000 and gave it a buy rating with the potential to grow 20% this year. Now that the stock has reached its target, let’s once again see if it’s still a buy.
The current situation:
The stock is trading at $1,204.
Netflix has a 52-week high of $1,341 and a 52-week low of 660.
The company pays no dividend but enjoys a P/E ratio of 51.33.
It is up 2.35% in 1 month and 35% YTD. Interestingly, the stock has jumped 75% in the last 12 months.
What experts say: The average price target is $1,395.19 with a high forecast of $1,600 and a low forecast of $950. The average price target represents a 14.94% change from the last price of $1,213.86.
Why the stock has jumped so massively
Netflix stock surged 50% in the first half of 2025, significantly outperforming the S&P 500's 5% gain, driven by robust financial performance and ambitious growth plans.
The company reported a 13% year-over-year revenue increase to $10.5 billion and a 25% rise in earnings per share to $6.61 in Q1, bolstered by a 31.7% operating margin.
Netflix's announcement of plans to double revenue to $78 billion, triple operating income to $30 billion, and grow its global subscriber base to 410 million by 2030 fueled investor enthusiasm, despite a premium valuation of 59 times earnings and 14 times sales.
Ad business is growing
Netflix's advertising business is growing with its in-house ad-tech platform, the Netflix Ads Suite, offering personalized ads and a low four-minute-per-hour ad load, less than competitors like Hulu.
Available in the U.S., Canada, EMEA, and other ad-supported countries, it features smart ad placement based on viewer behavior. Partnerships with Google’s DV360, The Trade Desk, and Yahoo DSP simplify ad buying.
The ad-supported plan has 94 million users, popular among 18-34-year-olds, with U.S. users averaging 41 hours monthly. Netflix projects ad revenue to double by 2025 and reach $9 billion by 2030.
However, Netflix faces competition from Amazon and Disney. Amazon’s ad business grew 19% to $13.9 billion in Q1 2025, driven by Prime Video and others, with 275 million U.S. ad-supported viewers. Disney has 157 million global ad-supported users, including 112 million in the U.S. across Disney+, Hulu, and ESPN+.
What else is new?
Netflix is significantly expanding into live sports and events to diversify its content and attract new subscribers. It streamed two NFL games on Christmas Day 2024, drawing nearly 65 million viewers, and began carrying weekly WWE Raw in 2025.
Moreover, Netflix has secured U.S. broadcasting rights for FIFA's Women's World Cup in 2027 and 2031. This move into live sports could tap into new audiences, with potential deals projected to add significant revenue if successful.
Also, Netflix is increasing its content budget to $18 billion in 2025, an 11% rise from $16.2 billion in 2024, with a focus on international markets. For example, it’s investing over €1 billion in Spain between 2025 and 2028 to bolster its production hub in Tres Cantos, Madrid, and $200 million in Thailand since 2021 for local films and series like "Mad Unicorn" and "The Believers" Season 2. This strategy aims to capture regional audiences and enhance global subscriber growth.
Finding new revenue sources
Netflix is investing in gaming as a new growth area, integrating it into its platform to enhance subscriber engagement. While still early-stage, the company is exploring mobile gaming and interactive content to complement its core streaming offerings, as mentioned in its Q3 2024 earnings call. This could create a new revenue stream and differentiate Netflix from competitors.
Netflix's ad revenue doubled in 2024 and is expected to double again in 2025. The ad-supported tier drove 55% of new sign-ups in Q4 2024 where available, boosting advertiser opportunities.
Are there any risks?
The company has been struggling in some departments. Netflix has focused on global subscriber growth, investing heavily in local-language content to build a competitive edge.
Its stock fell 51% in 2022 due to subscriber declines but rebounded 65% in 2023 after introducing a lower-priced, ad-supported tier and cracking down on account sharing. It has performed exceptionally well in 2024 and 2025, but it has now stopped reporting quarterly subscriber numbers or average revenue per member (ARM). Instead, the company now focuses on metrics like revenue, operating margin, and engagement (time spent on the service), which they consider better indicators of business health.
Some analysts speculate this move reflects Netflix’s belief that subscriber growth may be nearing saturation in key markets, particularly after gains from initiatives like their password-sharing crackdown. We think that saturation is a serious concern and the company will have to keep doing things to not just grow in terms of subscribers but also revenue.
And it’s expensive
Netflix’s stock is pricey, trading at a P/E ratio of 51.5, double the S&P 500’s 24.7. Its forward P/E, based on Wall Street’s 2026 EPS estimate of $30.87, is around 38, still high.
Investors buying now must accept paying a premium. Short-term gains in the next 12 months may disappoint due to the valuation, but long-term holders could see strong returns if Netflix’s earnings keep growing.
Some also expect a stock split in the near future but we do not see it happening this year. All in all, we think Netflix is a buy. It’s the content king that has proven to be a hit against all odds and can easily grow 10% more in the next 12 months, making it a solid choice.
📰 Investment of the Week: Nvidia
Nvidia is our investment of the week as it approaches its Aug. 27, 2025 earnings report with strong momentum. Wall Street anticipates Q2 revenue of approximately $45.9B and EPS of $1.00–$1.01, fueled by robust AI demand and initial GB300 shipments. Analyst confidence is high, with Wedbush raising its price target to $210 and KeyBanc to $215, suggesting double-digit upside potential.
Bull Case: Nvidia continues to dominate the AI datacenter GPU market, benefiting from strong hyperscaler spending. The company has a history of surpassing high expectations, which could trigger a post-earnings rally if guidance remains strong or improves.
Risk Case: Geopolitical tensions and export restrictions, particularly discussions with U.S. officials regarding China-specific chips, introduce uncertainty. Additionally, supply constraints or weaker-than-expected short-term guidance could lead to disappointment, especially given the stock’s high valuation.
Analyst Sentiment: Based on consensus from 65 brokerage firms, Nvidia’s average brokerage recommendation is 1.8, reflecting an "Outperform" rating. The scale ranges from 1 (Strong Buy) to 5 (Sell), underscoring strong analyst optimism.
Historical Performance
Pre-Earnings Trends: NVDA stock typically experiences mixed performance in the lead-up to earnings. Shares have traded lower on average in the one-week, three-day, two-day, and one-day periods before earnings, with the strongest performance two weeks prior, averaging a 3.5% gain.
Post-Earnings Movement: NVDA shares have risen in 8 of the last 12 earnings reports, with an average first-day gain of 4.4%. However, one day after earnings, the stock has averaged a -1.0% loss.
Long-Term Returns: Over the past 10 years (40 reports), buying NVDA just before earnings has yielded median returns of 3%–4% over one-day, one-week, and one-month periods. Three-month holds have returned nearly 18%, while one-year holders have seen gains exceeding 112%.
Key Takeaway
Nvidia’s short-term earnings reactions can be volatile, but its long-term growth potential remains compelling. The company’s leadership in AI and strong analyst backing make it a standout choice for our investment of the week, though investors should be prepared for potential near-term fluctuations driven by geopolitical and supply chain risks.
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