Can Netflix’s AI-Powered Content Boost Justify Its Recent 37% Share Surge?

If you own Netflix stock, or you are eyeing it for your portfolio, you are definitely not alone. The streaming giant has been on a wild ride this year, gaining roughly 37% since January and posting an impressive 74% return over the past twelve months. Even the last three years tell a striking story, with shares surging more than fourfold. Those kinds of numbers catch anyone’s attention, whether you are a seasoned investor or simply curious about the next big winner in media and tech.

Recent developments keep fueling the conversation. Netflix is constantly making strategic moves, from leveraging new AI video generation tools to that headline-grabbing partnership bringing live TV from France’s TF1 onto the platform. In the big picture, the “streaming wars” are heating up. Netflix faces fierce competition from the likes of YouTube and Apple, but it is also branching out and exploring new revenue streams. All of this has investors wondering: is Netflix still undervalued, or are we just chasing another high-flyer?

It is natural to look at analyst price targets. Netflix is currently trading at about an 11% discount to the consensus, with some models suggesting its intrinsic value is almost 37% higher than where the shares last closed. Yet, taking a hard look under the hood, Netflix only scores a 1 out of 6 on our valuation checks for being undervalued. What does that actually mean for you as an investor? That is the central question we’ll unpack next, as we walk through the main valuation approaches and, later on, introduce a smarter way to weigh what Netflix is really worth.

Netflix delivered 73.8% returns over the last year. See how this stacks up to the rest of the Entertainment industry.

Approach 1: Netflix Cash Flows

The Discounted Cash Flow (DCF) model projects a company’s future free cash flows and then discounts them back to today to estimate what the business is really worth. It is a popular tool because it focuses on what matters: actual cash that a business can generate for shareholders.

For Netflix, trailing twelve months free cash flow sits at $8.59 billion. Analysts expect this figure to steadily rise over the next decade, reaching around $32.57 billion by 2035, with significant increases each year driven by both subscriber growth and new revenue streams.

When running these forecasts through a two-stage Free Cash Flow to Equity DCF model, the estimated intrinsic value for Netflix comes out to $886.96 per share. This is about 36.9% higher than the current market price, suggesting Netflix’s shares are currently 36.9% overvalued according to this cash flow-based approach.

In short, while Netflix’s cash generation is strong and forecasted to grow, the current share price already bakes in a lot of that optimism and then some.

Result: OVERVALUED

Our DCF analysis suggests Netflix may be overvalued by 36.9%. Find undervalued stocks based on DCF analysis or create your own screener to find better value opportunities.

Approach 2: Netflix Price vs Earnings (PE Ratio)

For established and profitable companies like Netflix, the price-to-earnings (PE) ratio is a widely accepted yardstick for valuation. The PE ratio shows how much investors are willing to pay for one dollar of current earnings, making it especially useful when comparing companies that reliably generate profits.

However, a "normal" or fair PE ratio varies depending on factors such as future growth potential, risk, competitive advantages and industry dynamics. Companies with stronger growth prospects and lower risk often receive higher PE ratios, as investors expect those future earnings to materialize and grow.

Currently, Netflix trades at a PE ratio of 50.34x. This is noticeably above the broader Entertainment industry average of 37.07x but below the average for its direct peer group, which sits at 68.20x. For further context, the Simply Wall St Fair Ratio for Netflix is calculated at 31.11x, factoring in its earnings growth, profit margins and sector position. Since Netflix’s current PE is substantially higher than both the fair value and the industry benchmark, its stock appears expensive using this lens.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Netflix Narrative

Beyond the traditional valuation ratios, “Narratives” offer a powerful, easy-to-understand way to guide your investment decisions by connecting a company’s story with its projected financials and the fair value you believe it deserves.

In simple terms, a Narrative is your perspective on where Netflix is headed, shaped by your assumptions about its future revenue, profits, and margins, all linked back to the company’s real opportunities and risks. Narratives help you capture the bigger picture behind the numbers and turn it into a tangible fair value estimate.

On the Simply Wall St platform, millions of investors build and share Narratives to express their outlooks. This makes it easy for anyone to frame the reasons to buy or sell by comparing their viewpoints against what the numbers are really saying. Narratives are dynamic because as new news or earnings arrive, forecasts and fair values update in real time. Your investment thesis stays responsive and up to date.

For example, one Netflix Narrative assumes rapid global expansion and strong ad revenue, resulting in a bullish fair value over $1,600 per share. A more cautious Narrative might highlight saturated markets and rising costs, pegging fair value closer to $750. By comparing your Narrative’s fair value with today’s market price, you can decide with confidence whether Netflix is a buy, hold, or sell, always supported by a clearly defined story for your stance.

For Netflix, we’ll make it really easy for you with previews of two leading Netflix Narratives:

🐂 Netflix Bull Case
Fair Value: $1,350.32
Current Price is 10.1% below fair value
Revenue Growth Rate: 12.5%

• Proprietary ad tech rollout and global partnerships help support monetization gains and strong subscriber growth.
• Investments in regionalized content and advanced AI-driven user experiences contribute to higher engagement, retention, and improved margins.
• Main risks include rising content costs, market saturation, and regulatory pressures that may impact projected profitability.

🐻 Netflix Bear Case
Fair Value: $797.74
Current Price is 52.3% above fair value
Revenue Growth Rate: 13.0%

• Streaming industry consolidation and internal initiatives such as ad-supported plans and paid sharing are expected to add subscribers and revenue.
• There may be short-term pressure on ARPU (Average Revenue Per User), with long-term increases anticipated from advertising and price adjustments.
• Risks consist of competition, challenges in executing new initiatives, and possible margin pressures due to strikes and rising global content costs.

Do you think there's more to the story for Netflix? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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