Tesla's position as one of the "Big Seven" in the US stock market is being questioned, with Netflix emerging as the strongest competitor

According to the financial news app Zhitong Finance, despite the better-than-expected third-quarter performance driving Tesla (TSLA.US) stock to soar and achieve the largest single-day gain in over a decade, Wall Street is reevaluating the company's position as one of the "Big Seven" in the US stock market. The "Big Seven" in the US stock market - Apple (AAPL.US), Nvidia (NVDA.US), Microsoft (MSFT.US), Alphabet (GOOGL.US), Amazon (AMZN.US), Meta (META.US), and Tesla - led the rise of the US stock market in 2023. As the third-quarter earnings season approaches, they are once again seen as potential key drivers of the stock market's rise. Data shows that the average profit growth of the "Big Seven" in the third quarter is expected to be 18.1%, with Nvidia, Alphabet, Amazon, and Meta expected to be among the top ten stocks contributing the most to the profit growth of the S&P 500 index. Tesla's net profit in the third quarter increased by 17% year-on-year, achieving a dramatic turnaround after two consecutive quarters of decline. Despite the improved profit performance of Tesla, concerns about the company continue. Wall Street strategists believe that due to the overhyped fundamentals, Tesla still faces the risk of lagging behind other large tech stocks. Jay Woods, Chief Global Strategist at Freedom Capital Markets, likened Tesla's stock to Bitcoin, implying that the stock's trading is more based on "hope and dreams" rather than fundamentals. Woods warned, "Tesla has had its glorious moments. But in my view, it now resembles Cisco or Intel during the dot-com bubble era." Although Tesla CEO Musk often categorizes Tesla as a tech company, the company's bets on artificial intelligence and robotics will take years to pay off. Meanwhile, Tesla must rely on improving its core automotive business, which contrasts sharply with its peers in the "Big Seven" of the US stock market. Tesla's previous poor performance and high valuation further weaken its position among the "Big Seven" in the US stock market. Data shows that the company's forward P/E ratio is close to 73 times, far exceeding other companies in the "Big Seven." Additionally, as of last Friday, only 40% of Wall Street analysts rated Tesla as "Buy," making it the least favored component stock among the "Big Seven" by analysts. As for who is most likely to replace Tesla in the "Big Seven" of the US stock market, Netflix (NFLX.US) has emerged as a strong competitor. Ayako Yoshioka, Senior Portfolio Manager at Wealth Enhancement Group, stated that with strong earnings and reliable guidance, this original FAANG component stock has recently hit an all-time high. Year-to-date in 2024, Netflix's stock price has risen by 55%, second only to Nvidia and Meta. Jesus Alvarado-Martinez, an analyst at Portfolio Wealth Advisors, stated that being one of the "Big Seven" in the US stock market means being a "cash flow machine," a requirement that Netflix "meets." He added, "Netflix's free cash flow has been continuously increasing, with substantial profits, substantial free cash flow, and a substantial number of users." Data shows that Netflix's free cash flow grew to $2.19 billion in the third quarter, up from $1.89 billion in the same period last year; by 2023, its total free cash flow will be $6.93 billion, higher than $1.62 billion in 2022. Bank of America analyst Jessica Reif Ehrlich believes that Netflix's growing free cash flow is the catalyst for the stock's rise. Analysts expect the company's free cash flow to rise to $8.9 billion in 2025 and further to $11.16 billion in 2026. Furthermore, as of last Friday, Wall Street analysts have overwhelmingly optimistic views on Netflix, with 87% of analysts rating the stock as "buy" and only 3% recommending "sell." While Tesla's fate among the "Big Seven" in the US stock market remains uncertain, Netflix's recent surge in stock price reminds investors why it was once the most popular company. This further supports the view that now may be the right time to consider changing the members of the "Big Seven" in the US stock market