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This Week's Exclusive Story
Axon Surged After Earnings and Is Still Down Over 50% From HighsAuthored by Leo Miller. First Published: 5/12/2026. 
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
- Special Report: Elon’s “Hidden” Company
After being beaten down for much of the past year, Axon Enterprise (NASDAQ: AXON) scored a big win after its latest earnings report. Shares surged nearly 11% following the company’s May release, as it delivered impressive sales, earnings, and guidance. Even so, the defense stock remains down sharply, still trading at less than 50% of its 52-week high reached in August 2025. Some of that decline was likely justified, but other parts are much more questionable.
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At its prior highs, Axon traded at a forward price-to-earnings ratio (P/E) of nearly 130x, a clear sign of a company “priced for perfection.” However, the stock has also fallen amid fears surrounding artificial intelligence in the software industry. That is despite the fact that hardware sales play a critical role in Axon’s business and help make its flywheel effect work. When push comes to shove, Axon’s results show why there is still a lot of room for optimism around this name going forward. Axon’s Beat and Raise Q1In Q1 2026, Axon reported revenue of $807.3 million, representing year-over-year growth of 34%. That comfortably beat estimates of $778.9 million. Meanwhile, adjusted earnings per share (EPS) rose just under 10% to $1.61, edging past expectations of $1.60. Notably, gross margins took a meaningful hit, causing revenue growth to outpace adjusted EPS growth by a wide margin. Gross margin fell by 150 basis points year over year to 59.1%, with the company citing global tariffs as the primary driver. This remains a legitimate headwind for Axon stock and a persistent topic 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%. That marks a meaningful increase from its previous midpoint guidance of 29%, supported by contracted booking growth of 44% year over year, well above Q1 sales growth. Importantly, Axon is also seeing strong growth from its AI offerings, countering the narrative that artificial intelligence is a major threat to the company rather than a tailwind. AI Growth Soars as Law Enforcement Buys InAxon’s AI Era plan is its most expensive hardware-and-software package for law enforcement. In this segment, bookings rose 140% year over year, with the company noting that “nearly all large domestic law enforcement agencies are now including AI in their purchases.” That is a powerful statement, showing that AI is becoming central to how agencies make purchasing decisions rather than simply a nice-to-have feature. Slide 23 of the company’s Investor Deck also illustrates how hardware sales form the foundation of Axon’s software, services, and AI flywheel effect. In year one of the AI Era Plan, hardware sales account for about half of revenue. This is where the company sells products like tasers, body cameras, virtual reality headsets, and drones. After year one, however, hardware sales become minimal. Over a five-year period, the combination of AI and non-AI software and services makes up more than 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 paying for these services over several years, but they are useful only after purchasing the necessary hardware. So while Axon certainly has significant software exposure, its hardware-first model provides a level of protection from AI competition that software-only companies do not have. Adding to that, demand for Axon’s drones is spiking. During the quarter, its counter-drone revenue increased by 300% year over year. Bookings rose even more sharply, up 500% year over year, indicating accelerating demand. Axon Continues Its Post-Earnings Success; Markets Remain UnconvincedNotably, despite recent declines, Axon has repeatedly demonstrated the strength of its business through financial results. Over its past 10 earnings releases, the stock has posted an average gain of approximately 12% in the days following earnings. That is a feat investors would be hard-pressed to find in many other stocks. Of course, past post-earnings success does not guarantee future gains. Still, it suggests one thing: the market has repeatedly underestimated Axon and then adjusted after the company delivers numbers that are hard to ignore. It is arguable that the same thing is happening now, given the stock’s steep decline and post-earnings jump. Furthermore, much of Axon’s price action continues to track the broader software market. That suggests investors have yet to fully separate Axon from software stocks, despite the meaningful differences in its business model. Analysts remain positive on Axon. The MarketBeat consensus price target sits near $713, implying upside of more than 75%. Targets updated after the company’s earnings report are notably lower, averaging around $604. Even so, that still implies substantial upside of just over 50%. |
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