In the third quarter, Cohen sold the entire stake Apple(NASDAQ: AAPL )The second largest container, excluding the previous options. He started in a small place Axon Enterprise(NASDAQ: AXON )Artificial Intelligence (AI) has increased 500% in the last 30 months. The new position is relatively small, but it still means that Cohen was more comfortable holding the stock than Apple.
Importantly, Cohen is an excellent source of inspiration from a historical perspective, but the trades took place in the third quarter, and the fourth quarter update is not due for a few weeks. So, here’s a more up-to-date look at Apple and Axon.
Apple has developed excellent brand authority through engineering expertise. The company enjoys a strong presence in several consumer electronics markets, including a leadership position in smartphones in terms of revenue. Consumer loyalty has helped Apple grow its service business. But the company is beset by headwinds that threaten to drag on profitability in the coming years.
Apple’s iPhone has lost significant market share in China. The company has yet to announce financial results for the December quarter, but Counterpoint Research says iPhone sales fell by more than 18% in that period. Thus, after leading the Chinese market in terms of smartphone sales in 2023, Apple will not be among the top three sellers in 2024.
In addition, if federal judge Amit Mehta blocks it, Apple could lose $20 billion in annual service revenue. AlphabetGoogle instead of paying for default search placement in the Safari browser. His decision is expected in August 2025, and a long appeal process may follow, but analysts say that if the deal is blocked, Apple could lose 4% to 6% of its profits.
Additionally, many analysts expected a historic iPhone upgrade cycle after the introduction. AI features (called Apple Intelligence) in October, but that hasn’t materialized yet. In fact, Craig Moffett at Moffett Nathanson recently wrote, “We don’t see any signs of an improvement cycle, but we do see growing evidence that consumers are unaffected by AI functionality.”
Finally, Wall Street expects Apple’s revenue to rise 9 percent next year. That agreement makes the current estimate 33 times revenues It looks expensive. What’s more, while Apple stock has returned 72 percent over the past two years, its price-to-earnings ratio has increased 72 percent over that period. This means stocks have only moved higher on expansion, not earnings growth.
Investors should stay away from this stock.
Axon is a public safety company that works with US law enforcement, the federal government, businesses and certain international governments. While Axon is best known for conducted energy devices sold under the Taser brand, the company also offers body cameras and other sensors along with software for digital evidence management, reporting and situational awareness.
Importantly, Axon has added several artificial intelligence features to its software products, such as automatic copying and editing of video evidence, as well as automated license plate reading. The latest AIA product, Draft One, uses body camera recordings to prepare police reports. Draft One hit the $100 million revenue milestone faster than any other product in company history.
Axon reported strong financial results in the third quarter. Revenue increased 32 percent to $544 million on strong sales growth in Tasers, body cameras and digital evidence management software. Meanwhile, non-GAAP (generally accepted accounting principles) earnings per diluted share rose 19% to $1.45. The company raised its full-year outlook and said it expects to grow its revenue by 32 percent in 2024.
The company is a market leader in Tasers, body cameras and digital evidence management software, and has a strong presence in drones and robotics. CEO Rick Smith recently said, “We are positioning ourselves as the undisputed leader in delivering the power of AI in practical and actionable applications.” However, Axon holds less than 3 percent of its $77 billion potential market, leaving a long runway for growth.
Unfortunately, the review is somewhat spot on. Wall Street expects the company’s revenue to grow 22 percent annually through 2025. That estimate, at 120 times current adjusted earnings, looks too expensive. Having said that, Axon has reported earnings above consensus in each of the past 12 quarters, and has beaten consensus by an average of 34% over the past six quarters.
If that pattern continues, the stock may look overvalued on the upside. Therefore, at least three to five years from now, investors who are risk-averse should consider buying a very small position today.
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Alphabet CEO Susan Frey is a member of The Motley Fool’s board of directors. Trevor Janewin He has positions at Axon Enterprise. He has positions in the Motley Fool and recommends Alphabet, Apple, and Axon Enterprise. The Motley Fool has Disclosure Policy.
