Axon Surged After Earnings and Is Still Down Over 50% From Highs

Key Points

• Axon Enterprise went from a market darling to getting crushed, partially due to AI fears hitting software stocks
• Despite investor pessimism, Axon has consistently impressed with its financial results, leading to large post-earnings spikes
• AI is becoming a growth driver and the latest element of the company's hardware-driven flywheel effect

After getting beaten down for the better part of a year, Axon Enterprise NASDAQ: AXON scored a big win after its last earnings report. Shares surged by nearly 11% following the firm’s May release, with the company posting impressive sales, earnings, and guidance.

Nonetheless, the defense stock is down big time, still trading at less than 50% of its 52-week high reached in August 2025. Some of this fall was likely justified, but other aspects are much more questionable.

At past highs, Axon traded at a forward price-to-earnings ratio (P/E) near 130x; evident of a company “priced for perfection."

However, the stock has also sunk amid fears of artificial intelligence in the software industry. This comes even though hardware sales play a critical role in Axon’s business and make its flywheel effect work.

When push comes to shove, Axon’s results show why there is a lot of room for optimism around this name going forward.

Axon’s Beat and Raise Q1

In Q1 2026, Axon reported revenue of $807.3 million, good for a growth rate of 34% year over year (YOY). This very handily beat estimates of $778.9 million. Meanwhile, adjusted earnings per share (EPS) rose by just under 10% to $1.61, a slight beat over expectations of $1.60. Notably, gross margins took a meaningful hit, leading to revenue growing much faster than adjusted EPS.

Gross margin fell by 150 basis points YOY to 59.1%, with the company noting global tariffs as the primary driver. This is another legitimate factor hurting Axon stock, being a persistent talking point on earnings calls.

Despite this, the company maintained its full-year adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin guidance of 25.5%. Axon also raised its full-year revenue growth guidance to a midpoint of 31%. This is a meaningful boost over past midpoint guidance of 29%, coming as contracted booking growth increased 44% YOY, well above Q1 sales growth. Importantly, Axon is seeing considerable growth from its AI offerings, counteracting the narrative that the technology is a large threat to Axon rather than a tailwind.

AI Growth Soars as Law Enforcement Buys In

Axon’s AI Era plan is its most expensive hardware and software package for law enforcement. Here, bookings rose by 140% YOY, with the company noting that “nearly all large domestic law enforcement agencies are now including AI in their purchases.” That’s a very strong statement, showing that AI is moving to the core of how agencies make purchasing decisions, rather than being a nice-to-have.

Slide 23 of the company’s Investor Deck also illustrates how hardware sales form the basis of the company’s software, services, and AI flywheel effect. In year one of the AI Era Plan, hardware sales represent about half of revenue. This is where the company sells products like tasers, body cameras, virtual reality headsets, and drones.

However, after year one, hardware sales are very minimal. Over a five-year period, the combination of AI and non-AI software and services makes up over 75% of total plan revenue. This includes offerings like Draft One, where AI uses body camera recordings to create a first draft of incident reports, saving officers time on paperwork.

Agencies continue to pay for these services over several years, but they are useful only after first purchasing the necessary hardware. So, while Axon certainly has significant software exposure, its hardware-first model provides protection from AI competition that software-only companies do not possess.

Adding to this is the fact that demand for Axon’s drones is spiking. During the quarter, its counter-drone revenue increased by 300% YOY. Bookings rose considerably more, up 500% YOY, indicating that demand is accelerating.

Axon Continues Its Post-Earnings Success; Markets Remain Unconvinced

Notably, despite recent drops, Axon has continually shown the strength of its business through financial results. Following its past 10 earnings releases, Axon has seen an average post-earnings gain of approximately 12%. That is a feat investors would be hard-pressed to find in many other stocks.

Surely, past post-earnings success does not mean it will continue. However, it is evidence of one thing: the market has repeatedly underestimated Axon and then corrected after the company provides numbers that it cannot deny. It's arguable that the same thing is happening now, given the stock’s massive decline and post-earnings jump.

Furthermore, much of Axon’s price action continues to coincide with the price action of the overall software market. This indicates that investors have yet to separate Axon from software stocks, despite the significant differences in its business model.

Analysts continue to have a positive outlook on Axon. The MarketBeat consensus price target sits near $713, implying upside north of 75%. Targets updated after the company’s earnings report are considerably lower, averaging around $604. However, this figure still implies substantial upside of just over 50%.