Netflix Inc (NASDAQ: NFLX) is inching down this morning after a Brazilian tax dispute made it come in shy of earnings estimates for its third financial quarter.
However, not all was gloomy in the company’s earnings release. For example, Netflix management said AI is actually a “significant opportunity” for the streaming giant, not a threat as many believed.
Despite the post-earnings plunge, Netflix stock remains up roughly 35% versus its April low.
Why some feared AI would hurt Netflix stock
Artificial intelligence has stirred anxiety across Hollywood. In fact, the 2023 SAG-AFTRA strike, lasting over 100 days, was fuelled in part by fears that AI could replace actors and writers.
Concerns deepened when startups like Particle6 proposed fully AI-generated talent – prompting backlash from unions and creatives alike.
Investors, too, have questioned whether AI could dilute Netflix’s brand or trigger regulatory scrutiny.
With artificial intelligence-enabled tools capable of mimicking voices, generating scripts, and even designing sets, some feared a future where human creativity was sidelined.
That tension raised questions about whether Netflix’s embrace of AI would alienate talent or spark reputational risk, especially as labour protections around AI remain in flux.
But the streaming giant put most of such concerns to rest this week, saying it’s been using artificial intelligence and will continue to leverage it, as the technology really is a boon, not a bane, for the company.
Arguably, therefore, NFLX stock could push higher as the use of AI positively impacts operations over time.
How AI may actually drive NFLX share price higher
Rather than replacing creatives, Netflix Inc. insists artificial intelligence is a tool for amplification.
Ted Sarandos, the company’s co-chief executive, addressed the issue directly – saying “AI can’t automatically make you a great storyteller if you’re not.”
Instead, the company is using generative AI to streamline production workflows and enhance viewer experiences.
For instance, the film Happy Gilmore 2 used AI tools to digitally de-age characters, while the series Billionaires’ Bunker leveraged artificial intelligence in pre-production to visualize wardrobe and set designs.
NFLX also sees AI as a growth engine for its ad business and recommendation algorithms.
With ad revenue on track to double this year, the Nasdaq-listed firm believes artificial intelligence will help it scale both monetization and content discovery, which presumably will be positive for Netflix shares.
Morgan Stanley says Netflix could rally to $1,500
Despite missing earnings estimates, Morgan Stanley analyst Benjamin Swinburne remains bullish as ever on NFLX shares.
Swinburne maintained his “overweight” rating on the mass media and entertainment conglomerate this morning with a $1,500 price target, indicating potential upside of more than 30% from here.
“Underlying margins outperformed … advertising momentum continues to build and engagement trends are improving vs 1H25 – we remain bullish on ’26 and beyond.”
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