Magnificent 7 shake-up: Why Wall Street is reassessing Tesla's position and looking toward Netflix

Published On Oct 27, 2024, 9:00 AM

Wall Street is reexamining Tesla's place in the so-called Magnificent Seven technological stocks following a recent earnings report that bolstered its performance. Despite an impressive jump in quarterly profits—up 17%—Tesla is viewed by analysts as potentially vulnerable due to its high valuation (73 times forward earnings) and the view that it trades more on speculative hopes than strong fundamentals. In contrast, Netflix is gaining attention as a strong candidate to replace Tesla in this exclusive group, benefiting from robust earnings and a substantial increase in free cash flow, which is expected to grow significantly in the coming years. The sentiment among analysts is overwhelmingly positive towards Netflix, making it a compelling option for investors.

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Stock Forecasts

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Positive

Tesla's high valuation and reliance on future potential rather than current financial strength put it at risk of being sidelined by its tech peers, leading to potential underperformance as investors seek more stable options. Conversely, Netflix's strong free cash flow and stock performance position it well for continued growth.

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Negative

Given the speculative nature surrounding Tesla's valuation and analysts' cautious outlook, it faces potential downward pressure as the tech sector evolves and investors may rotate away from it to more stable companies with solid growth metrics.

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