Netflix Pullback or Setup? HSBC's Buy Call vs. the Warner Bid Reality

The immediate event is a sharp price drop. HSBC initiated coverage of Netflix with a Buy rating, citing that the stock trades 33% below its summer 2025 peak. The bank sees this pullback as an opportunity, valuing the stock at a $107 target price that implies 18% upside based on a 34x multiple to 2026 earnings. This is a classic tactical setup: a significant decline creating a potential mispricing.

Yet this Buy call arrives against a stark counter-narrative. The catalyst for the pullback itself is the $83 billion bid for Warner Bros. Discovery, announced in December. HSBC directly addresses this deal, framing it not as a growth catalyst but as a sign of industry pressure. The bank notes Netflix's domestic market is nearly saturated and competition from user-generated video is intensifying, with NFLX hours viewed only +1% y-o-y in 1H25.

The thesis is now a tension. HSBC's Buy rating is a bet that the stock's decline is an overreaction to this fundamental pressure. The bank argues the fundamental earnings outlook remains sturdy, supported by deepening monetization and international growth. But the Warner bid introduces a material risk: it signals that even a leader like Netflix feels compelled to make a massive, strategic acquisition to combat stagnation. This deal could consume capital, create integration challenges, and validate the very industry pressures that drove the stock down. The setup is clear: a tactical buying opportunity versus a fundamental shift in the competitive landscape.

The Bull Case: Sturdy Fundamentals vs. Deal Risks

HSBC's bullish stance rests on a clear hierarchy of conviction. The bank believes the core business fundamentals are robust enough to support a Buy rating, citing deepening monetisation, improving profitability, and a "sizable international opportunity" as key pillars. This is the foundation for its valuation model, which applies a 34x multiple to 2026 estimated earnings to reach a $107 target. In this view, the 33% pullback is an overreaction to near-term industry headwinds, not a reflection of deteriorating earnings power.

The Warner deal introduces a critical, unquantified variable. HSBC acknowledges the bid signals pressure but frames it as a strategic move that could ultimately benefit Netflix. The bank estimates the merged entity could lift earnings by 2% to 4% in 2028–29, driven by bundling HBO content and expanding premium offerings. This projection is the bullish counterpoint to the deal's scale and integration risks. It suggests the bank sees the acquisition as a catalyst that enhances, rather than distracts from, the long-term earnings trajectory.

The tension is in the timeframes. HSBC's valuation is based on 2026 earnings, a period before the full impact of the Warner integration would be felt. The bank's belief that the "fundamental earnings outlook remains sturdy" implies it views the core business as capable of delivering on that near-term multiple. Yet the deal itself, at $83 billion, is a massive capital commitment that introduces execution risk and could divert focus from organic growth. The 2-4% earnings lift is a forward-looking estimate, not a guarantee baked into today's price.

The bottom line is a bet on the fundamentals outweighing the deal's uncertainty. HSBC sees the sturdy earnings profile as the dominant force, with the Warner bid as a potentially accretive but risky variable. For the stock to re-rate, investors must believe the bank's long-term earnings projection will materialize, overcoming the near-term capital and integration burdens of the largest streaming deal ever.

Valuation and the Path to the Target

The mechanics of reaching HSBC's $107 target are straightforward but hinge on a difficult execution. The stock trades around $89.44, which is roughly 50% below its all-time high of $133.91 set last June. Closing that gap requires either a significant earnings beat in 2026 or a multiple expansion, both of which are now tied to the company's ability to manage the Warner deal.

HSBC's model already assumes a strong earnings baseline, applying a 34x multiple to 2026 estimates. That implies the target price is built on the bank's view that core fundamentals-deepening monetisation and improving profitability-will hold. The bank's 18% upside calculation is therefore a bet that Netflix can deliver on that near-term earnings power without disruption. The real question is whether the massive capital commitment for Warner will derail that trajectory.

The key near-term catalyst is proof that the deal does not distract from or damage the domestic business. The bank itself notes the domestic market is nearly saturated and that competition is intensifying. For the stock to re-rate, Netflix must demonstrate it can continue to grow its domestic subscriber base and revenue while integrating Warner. Any stumble in that core market would undermine the earnings foundation for the 2026 multiple.

In short, the path to $107 is narrow. It requires flawless execution on the Warner integration while maintaining the domestic growth and profitability that justify the current valuation. The 50% gap from the peak is a wide one, and it can only be closed if the company successfully navigates this dual challenge.

Palantir's Upgrade: A High-Flying Bet on AI Momentum

Citi's upgrade of Palantir to Buy is a classic momentum catalyst, but one that arrives at an extreme valuation. The bank raised its price target to $235, implying a 32% upside from recent levels. The trigger is clear: accelerating demand. Analyst Tyler Radke sees 2026 as a year of positive estimate revisions, driven by accelerating enterprise artificial intelligence adoption and government spending. He notes that despite revenue numbers moving up 10%+ since mid-year, the stock has been flat, suggesting the rally isn't over.

The mechanics of the trade are straightforward. Citi's target is built on the expectation that AI-driven revenue growth can continue to outpace the lofty valuation. The bank sees tailwinds from a ramping defense super cycle and modernization efforts, with government growth estimates for 2026 at 51% year-over-year. The upside case hinges on this demand translating into the kind of spectacular growth acceleration that has defined the stock.

Yet the valuation is the central risk. Palantir trades at a price-to-earnings ratio of 413.61, a multiple that prices in near-perfect execution. This isn't a value play; it's a bet on sustained hyper-growth. The stock's 164% surge over the last 12 months has already rewarded early believers, leaving little margin for error. The upgrade is a signal that the bank sees the AI momentum as durable enough to justify this premium, but any stumble in revenue growth or a shift in government spending could trigger a sharp re-rating.

The bottom line is a high-stakes event-driven bet. The catalyst is clear-accelerating AI adoption. The risk is equally clear: the stock is priced for perfection. For the 32% upside to materialize, Palantir must consistently deliver on the promise of 70-80% revenue growth in 2026, proving that its valuation is not a bubble but a justified premium.