We recently compiled a list of the Jim Cramer’s Bold Predictions About These 15 Tech Stocks. In this article, we are going to take a look at where Netflix, Inc. (NASDAQ:NFLX) stands against the other tech stocks Jim Cramer recently talked about.
Like all of us, Jim Cramer is always wondering what’s next for the stock market. So far, the year has seen AI continue to dominate the market, accompanied by the Federal Reserve and the 2024 US Presidential Election. Now, with the election over and investors pondering over the incoming administration’s tariff policies, like us, Cramer is also focused on the Federal Reserve.
The reason why the Fed and tariffs are related is because the latter can cause inflation to force the former to keep interest rates higher for longer. While it tries to decipher what’s ahead for AI, Wall Street is also wondering about the pace, magnitude, and frequency of the Federal Reserve’s 2025 interest rate cut cycle. This nervousness is reflected in bond yields touching 4.38% on Friday, and asset manager Apollo Global warning that four key inflation indicators appear to be reaccelerating. As per Apollo, the Core CPI, the Core PCE, the Supercore CPI, and the Supercore CPE have all started to rise again.
In Mad Money aired last week, Cramer also had the Fed in mind. Cramer, in his show, commented on the nervousness in the market. The television show host wondered why the stock market wasn’t responding to semiconductor stocks doing well. He started out by sharing that “I hate the endless focus on the Fed. By everybody. Because it detracts you from benefiting from long-term performance for your stock portfolio.” This is because Cramer believes that “every little signal from the Federal Reserve brings out predictions, causing many people to sell good stocks when they are freaked out.”
He did add that the economic data shows that there will be dissent at the Federal Reserve when it comes to further reducing interest rates at the upcoming December meeting. Cramer shared that “while I don’t think the data is cool enough to be positive about the prospects of more cuts for now, I also don’t want you to make decisions purely on what the Fed does. Contrary to popular belief, there’s more to investing than monetary policy. And I wish everyone knew that. They don’t.”
On the topic of tariffs, Cramer had plenty to share in November. He started out by analyzing the performance of the benchmark S&P index between mid-2017 and the start of 2020. Cramer pointed out that “this is where we start to get the real tariff action from the first Trump administration.” He shared that “Trump imposed tariffs on steel, aluminum, solar panels, and washing machines among other goods.” While “all these helped the industries in question . . .the broader market didn’t like that we were triggering a global trade war.”
Cramer pointed out the index’s performance between January 22nd and December 24th, 2018 to bolster the view that tariffs weren’t great for the stock market. However, before you write them off, consider his remarks. According to Cramer, during this time period, “the S&P 500 lost 18% of its value. Of course, some of that is because the Fed got much more aggressive about raising interest rates through this period. Taking them up. a 100 basis points that year. But it definitely wasn’t just the Fed. You can see from the chart that virtually every time we got more tariffs, the S&P would roll over, every time China retaliated, we’d sell off.”
Yet, according to Cramer, “once the Fed decided to stop tightening at the very end of 2018, the S&P was finally able to find a floor.” Following this, the market “rebounded like crazy” as part of a “bullish trading cycle, one that continued until Covid hit in 2020. Long story short, the market couldn’t handle the trade war when the Fed was tightening. But as soon as the Fed started easing, all those losses evaporated.”
Using charts from Jessica Inskip, Cramer compared the last intersection of the Fed and Trump tariffs with today’s environment. He outlined that the “Fed is now our friend.” Why is that so? Well, according to Cramer, as soon as the Fed stopped tightening, the market “stopped reacting as aggressively to the trade war.” He shared that Inskip believes that “something like a trade war can certainly hurt us badly when the market’s already trending bearishly. But if we’ve got a bullish trading cycle like we do right now, then she’s not worried as long as we can maintain this cycle.”
So, as Cramer remains cautiously optimistic about the stock market’s future, we decided to see how his views about stocks have stood the test of time.
Our Methodology
To make our list of the 15 stocks Jim Cramer has made bold predictions about, we compiled his statements about top tech stocks and ranked them by the date the statements were made.
For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds invest in? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A home theater with family members enjoying streaming content together.
Netflix, Inc. (NASDAQ:NFLX)
Number of Hedge Fund Holders In Q3 2024: 121
Date of Cramer’s Comments: 10-07-24/10-08-24
Cramer spent a large portion of Mad Money aired in October discussing the fight analysts were having around Netflix, Inc. (NASDAQ:NFLX). The argument was based on whether Netflix, Inc. (NASDAQ:NFLX)’s shares price in future growth and whether the firm has more room to grow revenue without adding subscribers:
“We got a genuine analyst gunfight over the stock of Netflix. Barclays downgraded the stock from equal weight to underweight. That’s actually hold to sell while keeping their very low price target at $550. At the same time, Piper Sandler upgraded Netflix from neutral to overweight, hold to buy, and took the price target from $650 to $800.
“These argue, and I’m gonna quote, ‘Netflix’s premium valuation is predicated on revenue growth being at least in the low double digits for some time’. But they think it’s going to be hard for the streaming giant to hit those numbers. In fact, Barclays argues that even if Netflix hits its revenue targets, the stock’s current valuation pretty much assumes the company can more than double its subscriber base, which is a pretty tall order. As they see it, Netflix is now a slowing growth story like, it trades like a steady growth story. In their view, while the company still has levers that can boost growth, these all come with serious trade-offs… Barclays actually believes that Netflix will find it harder and harder to keep delivering, which is a problem because the stock now trades at over 30 times next year’s earning estimates. Barclays also argues that as Netflix moves from a pure subscription-based system to something more of a hybrid subscription and advertising model and the company invests in things like video games [and] live events, its margin expansion will slow.” “Interestingly, this upgrade’s also based on valuation but in a much different sense. Right at the top of the note, Piper explains, ‘Our prior neutral stance was centered around valuation, but now we appreciate the company is expensive for a reason.’ Then they continue, ‘There are still levers to be pulled in the ads-free business, particularly around pricing while the ads tier has been largely de-risked heading into next year.’ In direct contrast [to] the Barclays downgrade, the Piper analyst says, ‘Consensus margins could also prove to be conservative in 2025 and 2026 based on the incremental margins over the last few quarters.’
“The Piper Sandler analysts argue, ‘Netflix still has levers to drive non-ads business.’.. They still think though that there’s room for subscriber growth. But more importantly, Piper claims that Netflix has more pricing power, which means they can generate double-digit revenue growth without adding as many new people. In fact, they expect a price increase soon on the back of a very strong content ramp
“. … the last time Netflix reported, they had an incredibly strong demand from advertisers. Management decided to approach the space carefully. Piper thinks there’s room for some upside surprise in the ad front going forward. The work I’ve done on this shows you that they can target ads better than almost anybody in the world… As the pivot continues to streaming, we gotta expect the company’s gonna maintain its leadership position, particularly as it adds more and more live content.
“I flat-out disagree with Barclays’ bearish assertion [that] Netflix can’t hit the revenue estimates. After a period in 2022 and 2023, where Netflix did indeed miss sales numbers several times, they’ve now beaten top-line expectations for four straight quarters. More importantly, with their ad business now ramping plus additional revenue from paid sharing plans, the company has more optionality than ever when it comes to how they’re gonna hit those revenue targets. And with Netflix no longer giving quarterly subscriber metrics starting next year, I think they can focus solely on hitting revenue expectations. That’s the new key metric.
“Barclays is very negative here. Piper Sandler argues that even if Netflix can’t keep expanding margins like it did this year, that doesn’t mean it can’t keep putting out more gradual growth. And we agree with that line of thinking.
“… Barclays argues that the stock’s premium valuation requires the company to do certain things. And Piper Sandler says that Netflix is expensive for a reason… Maybe I’m wrong to be so blunt, but I honestly wouldn’t get too hung up on the price-to-earnings multiple for this company. It’s never pointed you in the right direction of the stock. What’s more important is whether or not Netflix makes the numbers. If the company beats the earnings expectations as it has in 10 of the last 12 quarters, then we don’t need to worry about a stock’s premium valuation because the share price will look a lot cheaper in retrospect. If the company can’t make the numbers, then the stock’s got no reason to be expensive and it’s going to get hit. But the bottom line, until we hear of anyone canceling the Netflix subscriptions, maybe because of price or about any real troubles with the advertising business, which we don’t, or about the out-of-control cost and video games or live events, none of which has happened then I think Netflix deserves the benefit of the doubt and that’s why I’m sticking with the bullish side of this trade. The bear thesis? I don’t know. Too hypothetical.
“… Barclays argues that the stock’s premium valuation requires the company to do certain things. And Piper Sandler says that Netflix is expensive for a reason… Maybe I’m wrong to be so blunt, but I honestly wouldn’t get too hung up on the price-to-earnings multiple for this company. It’s never pointed you in the right direction of the stock. What’s more important is whether or not Netflix makes the numbers. If the company beats the earnings expectations as it has in 10 of the last 12 quarters, then we don’t need to worry about a stock’s premium valuation because the share price will look a lot cheaper in retrospect. If the company can’t make the numbers, then the stock’s got no reason to be expensive and it’s going to get hit. But the bottom line, until we hear of anyone canceling the Netflix subscriptions, maybe because of price or about any real troubles with the advertising business, which we don’t, or about the out-of-control cost and video games or live events, none of which has happened then I think Netflix deserves the benefit of the doubt and that’s why I’m sticking with the bullish side of this trade. The bear thesis? I don’t know. Too hypothetical.”
Since the divide between Barclays and Piper Sandler, Netflix, Inc. (NASDAQ:NFLX)’s shares have gained 27%, so safe to say, at least for the short term, Cramer’s bluntness was justified. Part of the rise is on the back of the firm airing Mike Tyson’s return to the ring through his fight with YouTube Jake Paul. The stock also rose by 11% in October after it added 5.1 million subscribers and a flurry of analyst price target raises led the median share price target to jump to $760 from $706.38. Netflix, Inc. (NASDAQ:NFLX)’s shares soared to an all-time high in December after JPMorgan increased the share price target to $1,010 from $850 on the back of higher advertising revenue and a strong content pipeline.
Overall NFLX ranks 11th on our list of the tech stocks Jim Cramer recently talked about. While we acknowledge the potential of NFLX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NFLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
