Netflix (NFLX) stock closed Monday, recovering from early meeting losses after JPMorgan analyst Doug Anmuth dropped the stock from overweight to neutral, while raising its target target from $1,150 to $1,220.

Anmuth pointed out that Netflix's valuation increased is a key reason for the downgrade. Stocks currently trading at record climaxes have grown by more than 30% since the beginning of the year, and have soared nearly 400% since October 2022, surpassing the 60% return of the S&P 500 (^GSPC) over the same period.

“To be clear, there is no change in our long-term view of NFLX streaming leadership and the potential for companies to effectively become global TV,” Anmuth said. “However, after stock prices appreciate and perform high, we think the risks/rewards in NFLX stocks are becoming increasingly balanced.”

So far this year, Netflix has been seen as a defensive name in large technologies, as there are greater concerns about the cost rise driven by tariff uncertainty, regulatory scrutiny, and the potential slowdown in advertising revenue. But the latest improvements in U.S.-China trade relations have already removed sector sentiment, which could prompt investors to spin into a more defeated name.

"NFLX stock has been defensive, but if tariffs and macro concerns continue to ease, we expect to turn to other internet names and markets that are more vulnerable and stressful," Anmuth said.

Additionally, analysts noted that Netflix usually enters a slower summer season, which may weigh on power, especially in recent times where catalysts are getting less and less.

Historically, the second quarter was a challenging quarter for the company. Although Netflix no longer discloses subscriber numbers, JPMorgan Chase estimates a net increase of 4.5 million in the quarter, including 750,000 in the U.S. and Canada.

Still, there are some reasons for optimism in the coming year.

In a previous speech last week, Netflix announced that its ad-supported tier has reached 94 million global monthly active users, up from 70 million in November. The company also noted that U.S. advertising-level members are involved, with about 41 hours of viewing per month comparable to what they have in an ad-free program.

Advertising remains a potential upside catalyst for Netflix stock, with JPM's Anmuth admitting that could be a place where his downgrade is too cautious. JPMorgan estimates Netflix's Ad-Tier revenue will exceed $3 billion this year, up from $1.4 billion in 2024.