Netflix’s Underperforming Stock Needs a New Story. It Can’t Be AI.

Netflix (NFLX) stock just had its worst losing streak since 2022, closing in the red for eight straight sessions. The stock has since recovered slightly but is still down 13% for the year. Moreover, NFLX stock is trading nearly 40% below its all-time high, reached in June 2025. The comparisons with 2022 are not lost here. The company lost subscribers in the first half of 2022 for the first time in a decade. The tepid performance came at a time when there was a brutal tech selloff in markets, and NFLX lost over half of its market cap that year.

However, amid its sagging fortunes, Netflix announced two key decisions in 2022 that helped revive its fortunes and, by extension, its stock price, which outperformed the markets by a wide margin over the next two years.

Netflix Announced Ad-Supported Plan in 2022

Firstly, it announced an ad-supported plan, which was quite a volte-face for the company that was against ads on streaming platforms. Secondly, it talked about a crackdown on password sharing by its members. Both these measures worked wonders for the company, and it added almost 100 million subscribers between 2023 and 2025, and its total subscriber count rose past 300 million. Incidentally, the stellar growth came at a time when rivals, particularly Disney (DIS), have been struggling to add subscribers. 

Netflix's ad business is witnessing strong growth as well, with revenue rising more than 2.5 times to $1.5 billion last year. The company expects revenue to double this year to about $3 billion as it capitalizes on a growing subscription base on the ad-supported tier.

Why Has NFLX Stock Underperformed in 2026

Meanwhile, the password-sharing crackdown might have largely run its course, and the incremental gains might not be as phenomenal as we saw initially. There is also a leadership transition at the company as Chairman Reed Hastings is stepping down from his position this month. Hastings stepped down as the co-CEO in 2023, handing over the baton to Greg Peters, who was then the company’s chief operating officer.

I expected NFLX stock to outperform amid the Iran war, and while the stock did see some buying interest, particularly after it walked away from acquiring assets of Warner Bros. Discovery (WBD), the optimism was short-lived.

Investors have been looking at artificial intelligence (AI) stories and are shunning companies and countries that don’t offer it. For instance, Indian shares have underperformed badly this year as the country does not offer any compelling AI story, and on the contrary, its information technology sector is feeling the heat from the technology. At the same time, South Korean and Taiwanese stock markets have raced ahead, riding the AI wave. In U.S. markets, Alphabet (GOOG) (GOOGL) has outperformed as its AI execution has impressed. However, the likes of Meta Platforms (META) and Microsoft (MSFT) have sagged as they are struggling to justify their AI capex.

Netflix Has an AI Story, Sort Of

To be sure, Netflix has also been leveraging AI, and in the Q3 2025 shareholder letter, the company addressed that aspect in detail. It is using AI to improve its recommendation and content discovery features. It is also helping creators with AI tools so that they can come up with even more compelling stories.

Gen AI is also helping the company’s ad business come up with more personalized and targeted ads. “We’re confident that AI is going to help us and help our creative partners tell stories better, faster, and in new ways—we’re all in on that,” said CEO Ted Sarandos during the Q3 earnings call. He, meanwhile, dismissed fears of AI replacing creativity and said that Netflix is instead “very excited about AI creating tools to help creativity.”

Speaking at the Bloomberg Tech conference in San Francisco earlier this week, Netflix’s chief product and technology officer, Elizabeth Stone, said that the company is leveraging AI to tailor recommendations, including based on the viewers' discerned mood. “That helps to solve a consumer frustration that’s brewing, which is, there’s so much content. How do I make sense of it, and what’s right for me, and what’s right for me in this moment?” said Stone.

Can AI Save the Day for Netflix?

AI should be an enabler for Netflix and help the company improve its recommendations and engagement even further. AI tools should enable Netflix to lower content production costs and help it produce even better content. While I am bullish on the AI story, I don’t believe it could be a game-changer for Netflix even though it would help drive incremental gains. I believe the stock needs a new story to win over markets, but AI might not be that magic wand.

That said, I find the stock quite attractive here at a forward price-to-earnings (P/E) multiple of just over 23x. Netflix brings prospects of a double-digit annual revenue rise on the back of rising subscription prices, membership growth, and a sharp increase in ad revenues. The company expects to keep expanding its margins, and its bottom-line growth should outstrip sales growth over the medium to long term. Sell-side analysts also see decent upside in NFLX, and its mean target price of $115.63 is almost 42% higher than current levels.