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Netflix Faces Investor Test as Advertising and Gaming Bets Seek Payoff

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Netflix (NFLX.O) heads into its third-quarter earnings report on Tuesday facing a pivotal moment: can its billion-dollar pushes into advertising and gaming justify its $120 billion stock rally this year and sustain growth beyond its streaming roots?

Analysts expect the company to post its fastest revenue growth in over four years, driven by blockbuster releases such as “KPop Demon Hunters” — its most successful film to date — and the return of “Wednesday.” The fourth quarter also looks promising with the final season of Stranger Things set to draw massive viewership.

Yet some investors are skeptical. Netflix stopped reporting subscriber numbers earlier this year, shifting focus to revenue and profit metrics, which has heightened pressure on its new ventures to perform. The company has spent about $1 billion building its gaming division, acquiring studios and developing over 120 mobile titles, including “GTA: San Andreas” and games inspired by hits like “Squid Game: Unleashed.”

So far, the results have been underwhelming. According to Omdia, Netflix’s games have increased user engagement by less than 0.5% after four years. Co-CEO Greg Peters defended the slow progress, comparing the rollout to Netflix’s early struggles in Japan — suggesting success will take time.

Netflix’s gaming challenges mirror those of other media giants such as Warner Bros Discovery, which have also struggled to turn big franchises into profitable games. Analysts note that Netflix’s lack of iconic intellectual property limits its competitive edge.

Meanwhile, Netflix’s ad-supported subscription tier — now available in key global markets — is emerging as the company’s most promising new revenue stream. Analysts estimate it generated around $662 million in Q3 and already attracts over half of new subscribers, totaling roughly 94 million users. Still, its overall impact remains small compared to Netflix’s projected $11.51 billion in quarterly revenue and $3.01 billion in net profit, representing jumps of 17% and 27%, respectively.

Investors like Brian Mulberry of Zacks Investment Management caution that while these new segments may eventually diversify Netflix’s revenue, “in the short term, they are not profitable.” The coming quarters will reveal whether Netflix’s gaming and advertising bets can transform from costly experiments into real growth engines.

Broadcom Shares Slip as Revenue Forecast Underwhelms AI-Driven Expectations

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Broadcom shares declined over 3% in early trading on Friday after its third-quarter revenue forecast failed to meet the high expectations of investors who have been heavily bullish on chip stocks amid the ongoing artificial intelligence surge.

The Palo Alto-based semiconductor giant projected third-quarter revenue of approximately $15.80 billion, slightly above the analysts’ consensus estimate of $15.71 billion, according to LSEG data. However, analysts noted that expectations for Broadcom had already been elevated due to its critical role in AI infrastructure.

“High expectations drove a bit of downside,” said Bernstein analyst Stacy Rasgon, reflecting the sentiment that even marginally positive forecasts may not be enough in the current AI-fueled market climate.

Broadcom provides semiconductors to major clients like Apple and Samsung and supplies advanced networking hardware essential for AI data centers, where massive data transfers are required to power generative AI models. In addition to its networking chips, Broadcom also designs custom AI processors for large cloud providers, offering an alternative to Nvidia’s expensive off-the-shelf chips.

Despite its position in the AI supply chain, Broadcom remains exposed to global trade uncertainties, particularly around U.S. export restrictions aimed at limiting China’s access to advanced technology. “AVGO is ramping two additional customers, but they are still small. So the processor business will grow this year, but at a measured rate,” Morgan Stanley commented.

Rival Marvell Technology, meanwhile, offered a more optimistic outlook last week, forecasting stronger-than-expected second-quarter revenue driven by growing demand for custom chips supporting AI workloads in data centers.

Broadcom briefly crossed the $1 trillion market cap threshold in December, reflecting investor optimism about AI-related chip demand. Its shares have climbed roughly 12% year-to-date. However, its current valuation — with a 12-month forward price-to-earnings ratio of 35.36 — remains significantly higher than Marvell’s 20.63, according to LSEG data.

Broadcom Raises Revenue Forecast on AI Chip Demand but Shares Dip

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Broadcom delivered a stronger-than-expected revenue forecast for its third quarter, supported by robust demand for its networking and custom AI computing chips. The company projected Q3 revenue of approximately $15.80 billion, exceeding analysts’ average estimate of $15.71 billion according to LSEG data.

Despite the upbeat forecast, Broadcom’s shares fell 4% in after-hours trading. The stock had already climbed nearly 30% over the past month and around 12% for the year, leading some investors to view the forecast as insufficiently exceeding high market expectations. “Clearly, expectations were high coming into the print,” said Kinngai Chan, senior research analyst at Summit Insights Group.

The Palo Alto-based company plays a crucial role in the AI hardware ecosystem, designing custom processors and networking chips for major AI and cloud computing clients such as OpenAI and Google. Broadcom has begun shipping its newest networking chip, the Tomahawk 6, which doubles the performance of its predecessor and enhances data center efficiency for AI workloads.

Broadcom CEO Hock Tan highlighted the ongoing growth, noting that AI semiconductor revenue is expected to accelerate to $5.1 billion in the third quarter, marking ten consecutive quarters of growth. “Our hyperscale partners continue to invest,” Tan stated. In contrast, non-AI semiconductor revenue remains sluggish and near the bottom of its cycle.

For the second quarter, Broadcom reported total revenue of $15 billion, narrowly surpassing analysts’ estimates of $14.99 billion. Revenue from its semiconductor segment, which includes products for data centers and networking, grew 16.7% year-over-year to $8.41 billion.