Netflix doesn’t have cash flow issues

In the age of AI, some big tech stocks have been all but forgotten. Netflix (NFLX -0.48%) is one of those stocks, as it doesn't have the AI angle that many others do. That shouldn't distract investors from how well Netflix has done over the years. However, 2026 has been an atrocious year for Netflix, as it has lost about 25% of its value since the year started.

Netflix is known to make some dramatic movements after earnings, and its next results come out on Oct. 20. So, is Netflix a buy before then? Or should investors steer clear?

Part of the reason for Netflix's lackluster stock performance has to do with how it stacks up versus alternative investments. If you're looking for a big tech stock right now, Netflix is being compared to several companies that are growing revenue above a 20% year-over-year pace, and in some cases it's far faster.

The problem is that Netflix just doesn't compare, as its second-quarter revenue growth was 13.4%. It's not going to get any better in the third quarter, as its revenue growth is projected to be about 11.7%. This is a notable deceleration, as Netflix's revenue growth trend has been declining recently.

NFLX Revenue (Quarterly YOY Growth) data by YCharts. YOY = year-over-year.

Wall Street analysts aren't any more bullish on the future. They estimate that Netflix's 2026 total revenue growth will be 13.3%, and that 2027's will be 11.2%. That's an OK growth rate for the maturity of Netflix's business, but why would you invest in Netflix when you can buy a company that is growing at a much faster rate?

The problem with some of the AI investments is that they're spending hundreds of billions of dollars on AI infrastructure, and there's no guarantee that there will be a tangible return on investments for those assets. This could be a huge issue, or it could be nothing, depending on what the final state of AI profitability and spending looks like. Netflix isn't doing that, and it's producing strong free cash flow.

Another reason why Netflix may be a solid investment is that it doesn't have a premium valuation. In fact, it trades for the same price tag as the S&P 500, as it trades for 19.6 times forward earnings.

NFLX PE Ratio (Forward) data by YCharts. PE = price-to-earnings.

I think this valuation is about perfect for Netflix, as it's growing at a slightly-faster-than-market pace and is in a pretty strong position to continue growing its revenue at a double-digit pace for the foreseeable future. With not much change on the horizon, I don't foresee any large movements following its Oct. 20 earnings report, unless a major unexpected story breaks.

So, is Netflix worth buying at these prices? I'm not sure. Many AI investments trade for only a slightly higher price tag than Netflix does right now, and are growing at a far faster pace. That could lead to far better returns over the next five years than Netflix projects to deliver.

ExpandNASDAQ: NFLXNetflixPremium FeatureMoneyball Superscore80/100Today's Change(-0.48%) $-0.34Current Price$70.12Key Data PointsMarket Cap$293BMarket cap calculated using publicly traded shares outstanding only. Does not include unlisted, private, or dual-class non-traded shares. Implied market cap may vary.Day's Range$70.03 – $71.2652wk Range$65.08 – $124.86Volume9.1MAvg Vol36.6MGross Margin49.53% If your goal is to beat the market, then I'm not sure investing in Netflix is the best move. It's becoming a market-average stock with not a whole lot left to differentiate itself. Unless you're looking for a stock that's not influenced by AI, I think investors can do far better than buying Netflix stock in terms of multi-year investment returns.

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