1) SpaceX (SPCX) was just added to the tech-heavy Nasdaq 100 Index after only 15 days of trading...
Normally, any new stock needs to "season" for three months before inclusion. But the cowards at Nasdaq (NDAQ) capitulated to SpaceX's demands and waived its requirement.
As this Wall Street Journal article notes, more than $800 billion of assets in mutual and exchange-traded funds track the Nasdaq's flagship tech index, including nearly $500 billion in the Invesco QQQ Trust (QQQ).
The limited free float of SpaceX's stock means its weighting will be less than 1% of the index. But this percentage will rise over time as more and more shares are unlocked.
And SpaceX is the most overvalued large-cap stock of all time, currently trading at 109 times trailing revenues (not earnings – revenues).
My advice remains the same: Both as a matter of principle as well as dollars and cents, avoid the Nasdaq 100.
2) Following up on yesterday's e-mail about Netflix (NFLX), I came across a compelling bull case for the stock...
Someone posting under the handle "ThinkAnew" pitched Netflix on my favorite stock idea website, Value Investors Club, on February 26. (Since then, the stock is down around 10%.)
The site is only open to members, so I'd like to share a few extended excerpts...
First, ThinkAnew highlights the virtuous cycle Netflix has created:
Hence for Netflix, from DVDs-by-mail to streaming, their strategy has always been distribution first, content second. Once you have built up the silky-smooth tech, the back-end-infrastructure, the brand name, and became the de-facto #1 in streaming and cornered the distribution channel that consumers get and discover content (with low churn), it becomes very hard for anyone else to uproot you. And each new customer means almost pure profits and even more revenue to re-invest in better tech.
So, it wasn't a chicken and egg problem from the beginning. Distribution always was the king on the internet, and Netflix got it right to first focus on distribution and building that direct relationship with customers (knowing what they like and pushing the right things to them using algorithms to make them happy), before pivoting to acquiring content when it was worthwhile. And by now, they also have the data to know what content works best and have the highest odds of success.
And once Netflix became the dominant distributor and its algorithms determine what you watch, they have so much power that suppliers (the actual content makers) flocked to them... [So then Netflix had] lower per unit content costs, suppliers willing to forgo more money for the opportunity to be on Netflix, etc... and they dominated the value chain. And consumers get a great service that is still arguably cheaper and better than what they can get elsewhere. And it becomes harder to cancel Netflix because they have the content budget to put something worth watching in a more rapid cadence than anyone else.
ThinkAnew shares a chart from Morgan Stanley Research showing that Netflix offers the best value of any streaming service, as measured by how many minutes per month the average subscriber watches per dollar paid in subscription fees:
ThinkAnew also notes that Netflix's monthly customer churn rate is far lower than its peers, according to this chart from Churnkey.co:
ThinkAnew shows the financial implications of Netflix's virtuous cycle:
This is the result when you have over 325M paid memberships and one billion people globally using your service. The same $20B of annual content cost just costs a lot less per customer and you can pass on the unit cost efficiencies to each of them. Again, scale wins.
And dominance clearly shows up [in] the numbers. Between 2018 and 2025, content cost as [a percentage] of revenue went from 48% to 36% and sales & marketing from 15% to 7%. And they can spend 3x the amount in research and development and general & administrative expenses over the years and EBIT [earnings before interest and taxes] went from 10% to 29.5%. ROIC [return on invested capital] is a mouth-watering 28%...
This is not core to the thesis, but advertising revenue grew 2.5x in 2025 and they think it'll double again in 2026 to $3B. Not insignificant for a $52B revenue (2026) and presumably most drops to bottom line.
Can Netflix's dominance continue? ThinkAnew says yes:
With its 1B audience, Netflix now possesses the ability to amplify the value of content, creating value out of thin air that no one else can. The widely cited examples are F1, Suits, and Kpop Demon Hunters. Who in the U.S. (except the hardcore fans) knew about F1 before Drive to Survive? Broadcast rights that were given for free by Liberty Media in 2018 suddenly were suddenly worth $150M a year when Apple signed it last year. Who created the value? Netflix! Suits was in Peacock and didn't get hot until it was on Netflix. And I watched Kpop Demon Hunters 8 months after it was released, and would I have watched it had I not have an existing subscription? Probably not!
So, because of its super wide reach, and the fact that most people in the most important economy of the world (here) already subscribe to the service, Netflix is in the prime position to make fads happen, to create value out of thin air. Folks don't have to go through the hassle of subscribing for 1 month to watch something one off (which is something they'll tackle with HBO Max). And logically, it gets harder to create a hit show if there's so much friction and you're dependent on many customers signing up just to watch one show or one movie. Netflix today has no such friction anymore.
As ThinkAnew continues, this gives Netflix the power to create "fads":
And when you can spend $20B on content costs (not sports like the others are doing) and when others are willing to give it to you at better prices, your probability of creating the next fad just goes up exponentially. And you do it again and again, which is what we've seen with Netflix in recent years.
And these "fads" are reinforcing Netflix's importance in consumers' mind. And it shows up in the churn numbers. Low churn (almost) always wins. And low churn will stay low churn because they have the most content to keep customers happy and they can plough revenue to new content/better tech when others have to spend on [sales and marketing] to reacquire customers.
Rather than AI being a threat, ThinkAnew believes Netflix will benefit from it:
Yes, AI in theory means lots more content and that means higher possibility of something being created in some other platform that might take attention away from Netflix. But there is nothing stopping content producers (who work for Netflix) from using the same AI tools and [being] more efficient. And when they create the next big thing, the next big proper thing at lower cost (not Youtube or Tiktok quality), where would they put their content? Netflix!
The right way to think about AI is it's a tool, it's an efficiency, time saving, and money saving tool. And it goes back to the Munger story of X company buying a new machine (new capital cost) to lower its cost structure, only to see all "savings" being passed on to customers, because there's no competitive differentiation. Only companies with existing moat keep these efficiencies, and in the streaming space, who can keep these savings more than Netflix?
ThinkAnew then takes a look at Netflix's guidance (in italics):
For 2026, based on F/X rates as of 1/1/2026, we forecast revenue of $50.7B-$51.7B. This represents 12%-14% year over year growth (or 11%-13% F/X neutral growth), driven by increases in membership and pricing plus a projected rough doubling of ad revenue in 2026 vs. 2025. We're targeting a 2026 operating margin of 31.5% (based on 1/1/26 F/X rates), up from 29.5% in 2025, which includes approximately $275M of acquisition-related expenses.
Basically, it means incremental EBIT margin of 45-47% (even with acquisition-related expenses; stripping them out, incremental EBIT margin is 50%). And management said clearly:
We still see plenty of room to increase our margins and our intent is to grow our operating margin each year, although the magnitude of margin expansion will vary year-to-year as we balance reinvesting in our business with improving profitability.
And ThinkAnew concludes by calculating Netflix's valuation:
When I plug in the numbers, and assume a 14% topline growth that declines to ~13% in 2030 (there's still quite a bit of international penetration to go after and each additional subscriber is highly profitable), and 45% incremental EBIT margins (you can easily argue this should be higher over time), I get to ~$31.8B EBIT. 17x forward [enterprise value ("EV")]/EBIT for dominance and EBIT that's still growing 16-17% is not outrageous.
This means $542B of EV in 2029, and I give them $47B in cash generation credit between 2026 and 2028 (assume 80% EBIT converts to real cash) and take out the $8B in debt, that means equity value by 2029 of $581B and about $134/share in a no-buyback scenario.
I think these numbers are reasonable...
With the stock closing yesterday at $76.02, ThinkAnew's $134 price target in 2029 would be a gain of 76%, or 21% compounded annually over the next three years.
To repeat what I wrote yesterday, I think Netflix's stock is extremely interesting at these levels. The company reports second-quarter earnings next week on July 16, which my team and I will be reviewing carefully.
If we decide it's a buy, Stansberry's Investment Advisory subscribers will, as always, be the first to know. You can become one by clicking here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.