The streaming giant's stock rose by 13% in trading following rumours that the computing company is considering shelling out $90 a share in a buyout, Forbes understands.
The publication notes that Netflix CEO Reed Hastings recently vacated his place on the Microsoft board, which could be an indication of negotiations between the two firms.
Netflix could potentially be used by Microsoft to bring competition to its rivals in the video and hardware sector, such as Amazon, Google and Apple.
It could also act as a first-party service for the company's Xbox Live platform and its Surface tablet, as well as future hardware ventures.
Netflix recently announced that it has reached more than 30 million members around the world, including 5m outside of the US.