While the broader markets are under pressure and tech stocks have fallen particularly hard this year, Netflix is up nearly 20% over the past month. In my previous article, I mentioned that NFLX’s risk-reward looks impressive. With stocks falling sharply from these levels, let’s see if the streaming giant is still a worthwhile investment.
Much of Netflix’s recent gains can be attributed to the company going through the acquisition of Warner Bros. ( WBD ) assets. The markets sent a loud and clear message, and the stock has since fallen since announcing the Netflix takeover in December 2025. NFLX stock rose after the company said its biggest acquisition would end a bidding war with Paramount Skydance ( PSKY ). Netflix didn’t exactly walk away empty-handed, though, and will receive $2.8 billion in break fees.
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With the immediate trigger of the WBD deal, the macro environment is also favorable for a rally in Netflix, which is a defensive play. For starters, fears of an artificial intelligence (AI) bubble and a selloff in software stocks have made some investors wary of tech stocks. Second, after a brief hiatus, trade uncertainty is back on the table with President Donald Trump announcing sweeping new tariffs after his previous tariffs were struck down by the Supreme Court. However, the new tariffs will also face legal scrutiny, with two dozen states suing Trump over them.
To make matters worse, Judge Richard Eaton of the US Court of International Trade in Manhattan ordered the government to pay back the tariffs already collected, which could worsen the already uncertain financial math.
An Iran war is even bleaker, as higher energy prices would be the last thing central banks and governments would want on a global scale. Softer energy prices helped curb inflation and gave central bankers, including Powell & Co. in the US, breathing room to cut interest rates. With inflation already looking sticky and tighter than the Fed’s 2% mandate, higher energy prices further reduce the likelihood of a rate cut this year, even if Trump nominee Kevin Warsh takes over from Powell this year.
Among tech names, Apple ( AAPL ) and Microsoft ( MSFT ) were seen as notable defensive plays with their rock-solid balance sheets and stable businesses. However, while Apple’s rich valuations limit its upside, Microsoft has somewhat lost its defensive posture as it continues to invest billions in AI.
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Netflix, meanwhile, emerged as a defensive play, which was on full display in 2025 when it hit big time in the first half of the year amid fears of a trade war. For most users, their Netflix subscriptions won’t be the first discretionary spending or subscription to ditch in tough economic times.
A Netflix subscription has become an almost utility-like service for many customers, including myself. The company made a moat investment in its business by stopping password sharing, attracting many customers who viewed content through shared passwords to buy their subscriptions.
The ad-supported tier was another success story and helped Netflix add millions of subscribers. The company’s advertising business is growing well, and revenue grew 2.5x to $1.5 billion last year. The company expects revenue to “almost double” this year as it capitalizes on a growing subscription base at ad-supported levels.
Given the fear of a “SaaS-pocalypse,” I’d be wary of classifying Netflix as a “software” company, but the company’s business model isn’t that different from a software company. The streaming industry has high operating leverage, as content and technology costs are largely fixed. The cost of creating new content is also subscriber base agnostic, even as growing a global subscriber base will warrant higher content costs to retain members and attract new ones.
The company’s operating margins reached nearly 30% last year, and it expects them to rise as revenue growth outpaces content costs, resulting in margin expansion.
Netflix’s valuation has expanded amid the recent rally, and it trades at a forward price-to-earnings (P/E) multiple of just over 31x. While the margin of safety is slightly lower than before the hike, I’m bullish on the stock at these levels and see it as a tactical buy amid broader market weakness.
NFLX outperformed the markets in the first half of 2025, and I wouldn’t be surprised to see similar results this year if the Iran war escalates. Even if things stabilize in the Middle East, stocks could deliver good returns over the next few years, given reasonable valuations and strong growth prospects.
As of publication date, Mohit Oberoi held positions in: NFLX, MSFT, AAPL. All information and data in this article is for informational purposes only. This article was originally published on Barchart.com
