We recently compiled a list of the 10 Most Profitable NASDAQ Stocks To Invest In. In this article, we are going to take a look at where Axon Enterprise Inc. (NASDAQ:AXON) stands against the other profitable NASDAQ stocks.
Is the Market Sentiment Still Bullish?
Recent analysis indicates that an anticipated tech rally may be delayed until year-end, despite the S&P 500 achieving a remarkable 20% increase year-to-date. As September closed, the index rose by 1.6%, defying its historical volatility and showcasing market resilience. Positive macroeconomic indicators are emerging, with upward revisions to Q3 growth estimates and low jobless claims, suggesting a stable economic foundation.
However, concerns about sustaining market momentum without new catalysts persist. Historically, stock prices and price-to-earnings multiples rise together unless disrupted by negative events. As the market approaches traditionally strong months following elections, expectations for a potential year-end rally are building. Despite elevated volatility and geopolitical tensions, investor caution remains. The NASDAQ 100 has surged significantly over the past two years, but this performance does not yet indicate speculative excess. In the last days of September, DataTrek Research co-founder, Nick Colas, joined CNBC to discuss the trading day and highlighted his outlook on the NASDAQ during the conversation. We covered his views in our article on the 10 Best Performing NASDAQ Stocks in 2024. Here’s an excerpt from it:
“…Over the past two years, the NASDAQ 100 has surged approximately 67%, marking a significant recovery since its lows in October two years ago. This performance is substantially above the historical average return of around 25%. Colas emphasized that while such returns are impressive, they do not yet indicate speculative excess; historically, a doubling of the NASDAQ over two years would signal potential trouble for investors.
Looking back further, Colas noted that since peaking before the bear market in November 2021, the NASDAQ 100 has only risen about 20% over three years. This suggests that there may still be room for growth compared to prior bubbles when returns were much more pronounced within shorter time frames.”
In a recent discussion on October 9, Jason Snipe, Odyssey Capital Advisors principal, joined CNBC’s ‘Closing Bell’ to discuss the tech sector’s mega-cap momentum, particularly in light of recent mega-cap stock downgrades and significant investor outflows. Despite these challenges, Jason Snipe noted that the tech sector is having a positive day, attributing this to a combination of improved earnings estimates across various sectors and substantial investments in AI-related capital expenditures. He emphasized that ~40% of operating cash flow is being allocated to AI, raising questions about when these investments will start to yield returns. This focus on AI has contributed to some recent downgrades but also suggests continued upside potential for select names within the sector.
Snipe further defended the tech space by highlighting the profit margins of mega-cap stocks, which average over 23%, compared to just over 8.5% for other sectors. This discrepancy indicates a strong reason for ongoing capital inflows into tech and software companies that demonstrate earnings strength. He acknowledged that while there may be some consolidation and a slowdown in growth, he believes that investors’ muscle memory will eventually lead to a resurgence in these stocks.
When discussing NVIDIA’s recent performance, Snipe pointed to comments made by the CEO regarding the endless demand for their Blackwell chip as a significant catalyst for the stock’s movement. He expressed confidence that it would exceed earnings expectations when they report later in the earnings season. However, Snipe also addressed concerns regarding Amazon, which has seen its stock decline for 8 of the last 9 days. He noted that its retail business appears to be struggling, with retail making up 62% of its operations. Despite this, he highlighted AWS as a bright spot, which reported a 19% year-over-year acceleration. He suggested that competition from other retailers could pressure its retail margins but remained optimistic about the company’s diverse revenue streams, including advertising and subscription services.
Snipe’s analysis underscores the complexities facing the tech sector amid market volatility and evolving economic conditions. While challenges persist, particularly with mega-cap stocks experiencing downgrades, there are also significant opportunities driven by innovation and strong profit margins that could support continued growth in this space. As expert sentiments shift regarding MAG7 and other big tech stocks, other profitable tech companies are maintaining their positive momentum in the market.
Methodology
We sifted through Finviz to compile an initial list of the top NASDAQ stocks. From that list, we narrowed our choices to 20 companies with positive TTM net income and 5-year net income compound annual growth rates. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician in a white coat testing an in-car system on a modern military vehicle.
Axon Enterprise Inc. (NASDAQ:AXON)
TTM Net Income: $290.7 million
5-Year Net Income CAGR: 81.03%
Number of Hedge Fund Holders: 36
Axon Enterprise Inc. (NASDAQ:AXON) is a global leader in public safety technology, primarily producing and marketing law enforcement technology solutions, including body-worn cameras, tasers, and evidence management software. Its products are designed to improve public safety, accountability, and transparency in law enforcement agencies worldwide.
Strong demand in the TASER segment, tactical acquisitions, and strategic partnerships contributed to the company’s success. In Q2 2024, Axon Enterprise Inc. (NASDAQ:AXON) posted record revenue of $504.10 million, up 34.57% year-over-year. It booked over $1 billion in new business. The company’s cloud and services segment grew 47% year-over-year. It has seen accelerated demand for various products, including Taser 10, Draft One, and Axon Body 4, and a strategic shift toward software and services, which now make up 39% of total revenue.
Recent acquisitions, such as Sky-Hero and Fusus, have strengthened its technological capabilities and expanded its market reach, adding $27 billion to its total addressable market. These acquisitions align with its existing products and enhance its software platform, driving growth through technology integration.
Despite concerns about a potential economic downturn, the company appears to be well-positioned for continued growth. Its focus on innovation, including AI capabilities and emerging market opportunities, positions it to capitalize on industry trends and deliver long-term value to investors. Shareholders have earned a 40% CAGR over the last 5 years.
Conestoga Capital Advisors Small Cap Strategy stated the following regarding Axon Enterprise, Inc. (NASDAQ:AXON) in its first quarter 2024 investor letter:
“Axon Enterprise, Inc. (NASDAQ:AXON): This manufacturer of the TASER stun gun and body cameras has been among the top contributors to the Small Cap Composite’s total return since first added to the portfolio in 2019. Its market capitalization now exceeds $20 billion. Conestoga trimmed the position over the past few years as the market capitalization rose and, in early 2024, we fully removed AXON from client portfolios.”
Overall AXON ranks 8th on our list of the most profitable NASDAQ stocks to invest in. While we acknowledge the potential of AXON as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AXON but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
