Steven Cohen runs Point72 Asset Management, a hedge fund that has earned $38 billion in profits since its inception in 1992. That makes him the 12th-most successful hedge fund manager in history, according to LCH Investments.
In the third quarter, Cohen sold his entire stake in Apple (AAPL), formerly his second-largest holding excluding options. He also started a small position in Axon Enterprise (AXON), an artificial intelligence 9aI) stock up 500% in the last 30 months. The new position is relatively small, but it still means Cohen was more comfortable owning Axon than Apple.
Importantly, Cohen is an excellent source of inspiration, given his track record, but those trades took place in the third quarter, and the fourth-quarter update isn't due for a few weeks. So, here is a more current look at Apple and Axon.
Apple: The stock Cohen sold in the third quarter
Apple has cultivated immense 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 also helped Apple grow its services 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 declined more than 18% in that period. Consequently, after leading the China market in smartphone sales in 2023, Apple failed to rank among the top three sellers in 2024.
Furthermore, Apple could lose $20 billion in annual services revenue if federal judge Amit Mehta prohibits Alphabet's Google from paying for default search placement in the Safari browser. His decision is expected in August 2025, and a long appeals process may follow, but analysts estimate Apple could lose 4% to 6% of its profits if the deal is prohibited.
Additionally, many analysts anticipated a historic iPhone upgrade cycle following the introduction of artificial intelligence (AI) features (called Apple Intelligence) in October, but that has yet to materialized. Indeed, Craig Moffett at MoffettNathanson recently wrote, "Not only have we not seen any sign of an upgrade cycle, but we have seen growing evidence that consumers are unmoved by AI functionality."
Finally, Wall Street expects Apple's earnings to increase 9% over the next year. That consensus makes the current valuation of 33 times earnings look expensive. Moreover, while Apple stock has returned 72% in the last two years, its price-to-earnings ratio has also increased 72% over that period. That means shares moved higher on multiple expansion alone, not earnings growth. Investors should avoid this stock.
Axon Enterprise: The stock Cohen bought in the third quarter
Axon is a public safety company that works with U.S. law enforcement, the federal government, commercial enterprises, and certain international governments. While Axon is best known for conducted energy devices sold under the Taser brand, the company also provides body cameras and other sensors that integrate with software for digital evidence management, reporting, and real-time situational awareness.
Importantly, Axon has added a number of artificial intelligence features to its software products, such as automatic transcription and redaction of video evidence, as well as automated license plate reading. Its latest AI product, Draft One, uses body camera recordings to draft off police reports. Draft One achieved a $100-million revenue pipeline faster than any product in company history.
Axon reported solid financial results in the third quarter. Revenue increased 32% to $544 million on strong sales growth in Tasers, body cameras, and digital evidence management software. Meanwhile, non-GAAP (generally accepted accounting principles) earnings increased 19% to $1.45 per diluted share. The company also raised its full-year outlook, such that revenue is projected to increase 32% in 2024. Axon is well positioned to maintain its growth trajectory.
The company is the market leader in Tasers, body cameras, and digital evidence management software, and it has momentum in drones and robotics. CEO Rick Smith recently said, "We are positioning ourselves as the indisputable leader in delivering the power of AI in practical, usable applications." Yet Axon has captured less than 3% of its $77 billion addressable market, leaving a long runway for growth.
Unfortunately, valuation is somewhat concerning. Wall Street expects the company's earnings to increase at 22% annually through 2025. That estimate makes the current multiple of 120 times adjusted earnings look very expensive. Having said that, Axon reported earnings above the consensus in the last 12 quarters, and it beat the consensus by an average of 34% in the last six quarters.
If that pattern continues, the stock may appear reasonably valued in hindsight. So, risk-tolerant investors with a time horizon of at least three to five years should consider buying a very small position today.
