2 Reasons Netflix's 40% Rally Is Far From Over

Shares of Netflix Inc. (NASDAQ: NFLX) have been on an absolute tear in recent weeks.

They’re now up more than 40% since the first week of April, breaking through previous records and entering the rarefied four-figure price range. 

While that kind of move tends to raise concerns about overheating, especially with the RSI now at 68, there are still two major reasons to believe the rally could continue into the summer, and why any pullback should be viewed as a buying opportunity.

1. Fundamentals Are Red Hot

Netflix’s latest earnings release firmly put its growth story in the spotlight. The company reported first-quarter earnings and revenue that came in well ahead of expectations, with the latter up 12.5% year-over-year. 

But what stood out most were the operating metrics. Operating income climbed 27%, while operating margin reached 32%, up from 28% a year earlier. Management also guided to even stronger profitability, forecasting a 33% margin for Q2 and reaffirming their full-year target of 29%.

The top-line outlook was also upgraded. Netflix now expects full-year revenue between $43.5 billion and $44.5 billion, up from previous guidance and above consensus estimates.

This reflects not only price increases and membership growth but also a sharp uptick in ad revenue, which the company says will roughly double in 2025.

Subscriber growth was another standout.

Netflix added 18.91 million net new subscribers in the quarter, blowing away expectations of 9.18 million. It was the highest quarterly net addition in company history, showing the platform is still gaining traction despite rising competition and market maturity.

2. Wall Street Is Getting Louder

Following that blowout report, analysts have begun to revise their targets higher. Last week, Wolfe Research reiterated its bullish stance and issued a new price target of $1,340. This echoed the call from Robert Baird who lifted its target to $1,300, while Canaccord Genuity Group went even further, calling for $1,380.

Those targets imply more than 15% upside from where the stock closed on Monday. That’s a significant projection for a company of Netflix’s size, especially after such a strong run. It also shows that many believe this is not the top but rather a new baseline from which the next leg higher can form.

These bullish forecasts are backed by Netflix’s ability to monetize its subscriber base through pricing, premium content, and a fast-growing ad business. With record subscriber growth and rising profitability, the company is executing at a level few of the tech giants can match.

Why One Major Firm Just Turned Cautious

Even with Netflix firing on all cylinders, some analysts are beginning to voice caution, not about the business, but the stock’s near-term setup. On Monday, J.P. Morgan downgraded Netflix to Neutral from Overweight, citing a more balanced risk/reward profile following the stock’s significant rally.

With shares hitting all-time highs and trading at roughly 39x 2026 earnings and 44x free cash flow, the valuation has started to limit the upside in the short term.

The firm still sees Netflix as a long-term leader in global streaming, driven by top-tier content, accelerating profitability, and a dominant position in the shift away from linear TV. 

But with macro conditions improving and market risk appetite broadening, the team there expects some capital rotation away from defensive names like Netflix toward more beaten-down sectors.

What to Watch in the Weeks Ahead

They also noted that following recent events like the company’s Upfront presentation, Netflix may face a quieter period on the catalyst front as it heads into summer, even with strong Q3 content on deck.

Still, the structural bull case remains intact. Netflix’s ability to scale globally, grow advertising revenue, and retain its content advantage means pullbacks should be seen in context: as a natural pause in a longer-term uptrend, not a reversal.

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The article "2 Reasons Netflix’s 40% Rally Is Far From Over" first appeared on MarketBeat.