What happened
Shares of Netflix (NFLX +0.96%) were getting left on the cutting room floor as the leading video streamer got swept up in a broad-based sell-off in tech stocks, on an intensifying trade war. As of 3:31 p.m. EDT, the stock was down 7%.
So what
President Donald Trump said he plans to curb Chinese investment in U.S. tech companies, news that weighed sharply on the Nasdaq, along with chipmakers and other high-growth tech stocks like Netflix.
Image source: Netflix.
According to a report in The Wall Street Journal, the Department of the Treasury is drafting a plan to block companies with at least 25% Chinese ownership from buying U.S. companies with "industrially significant technology." Treasury Secretary Steven Mnuchin rebuffed those claims on Twitter, saying that the new rules would apply not just to China, but any country "trying to steal our technology."
Such rules wouldn't appear to affect Netflix directly, as the company's strength comes not from proprietary technology but from its content library, brand name, and pricing power. However, the stock had already doubled this year, and is vulnerable to a broad pullback in the market or concerns that it may be overvalued.
Now what
Netflix's rightful valuation is consistently the subject of heated debate. But its intellectual property is unlikely to be affected by a trade war (and Netflix doesn't even operate in China). And the company is not particularly vulnerable to a recession, as its product is priced lower than its competitors', and video entertainment is a cheap distraction during tough times.
So the stock could fall some more if the tech sell-off continues. But the underlying growth that propelled Netflix to be the world's most valuable entertainment company should remain, regardless of the broader macroeconomic environment.
