AXON stock: Software growth, hardware risk

Coming off its tenth quarter of 30%+ growth, Axon Enterprise [AXON] looks like a hardware company but increasingly acts like a high-margin software business. 

But can it keep up with investor expectations?

Previously operating as TASER International, Scottsdale, Arizona-based Axon Enterprise is a public safety technology firm keen to diversify beyond its most famous product. As well as Taser energy weapons, the firm also offers aerial security drones, cameras and sensors for police operations, virtual-reality training hardware and a range of cloud-hosted digital evidence and operations software that have seen the company’s growth mirror that of a typical software-as-a-service (SaaS) firm. The transformation, however, is not complete, and the road ahead not without its controversies. 

Here, Aureon investigates Axon’s progress towards becoming a unified public safety platform and the headwinds it faces from artificial intelligence (AI) and public sentiment. 

Platform progress

The company reported Q2 2026 earnings on 5 August. It beat top- and bottom-line expectations, with revenue of $904.4m representing year-on-year growth of 35%, whereas adjusted earnings came in at $1.88 per share. Management underlined the growth of the company’s Dedrone segment, which reached $100m in quarterly revenue in Q2, and annual recurring revenue, which rose 39% y/y to $1.6bn. Net revenue retention reached 126%, and future contracted bookings reached a record $15.1bn, pointing to both impressive customer retention and strong long-term demand. New software in particular was a key driver of revenue growth, with revenue from its AI Era Plan growing nearly 700% y/y.

Despite these wins, the market fixated on declining profitability and rising inventory. Net income fell to $29.4m, down from $36.1m in the year-ago quarter, and Software and Services gross margin narrowed from 75.6% to 71.3% due to new product offerings and a higher mix of professional services revenue. Inventory grew from $341.8m at the end of 2025 to $486.6m as the company prepared to meet future demand. 

Strong quarterly performance saw management raise full year guidance, targeting growth in the range of 32-34% and an adjusted EBITDA margin of 25.5%. However, they warned of pressure on margins during Q3 resulting from increased memory costs and a lack of tariff refunds prior to a Q4 recovery. 

On 15 September, the company announced a $1bn offering of 0% convertible senior notes due 2031, although it did not announce the intended use for the funds. 

AXON’s rough ride

The first nine months of 2026 have been a volatile time for AXON shares.

Share prices have dropped from a peak in the second half of 2025, having achieved an all-time high of $885.92 on 5 August 2025, on the back of a Q2 earnings beat and bullish guidance. The stock was caught up in the SaaSpocalypse in February 2026, thanks to its relatively recent foray into software sales; later, investors punished it for declining profitability despite a Q2 2026 earnings beat in August, with the stock sinking 9% over two sessions. AXON stock consistently ranked among the top decliners in the Nasdaq Composite Index over the first two weeks of September.

As of 23 September, AXON shares were trading at $450.61, down 20.66% in the year to date and down 42.04% in the past 12 months.  

Security systems: AXON vs MSI vs PLTR

Axon Enterprise offers investors exposure to the technological buildout of public safety in the US and internationally, but it is not the only firm targeting an AI-powered security platform. 

Courting controversy and enormous government contracts alike, Palantir [PLTR] has become the poster child for defence in the AI era. The firm represents the prospects for a scaled-out, AI-driven software platform, offering data integration, analytics and real-time decision support that could be compared to Axon’s cloud-based evidence management and operations support software. In its Q2 2026 earnings, announced 3 August, Palantir recorded 93% revenue growth to $1.935bn, with GAAP EPS of $0.41. Its pipeline remains strong, with net dollar retention of 157% and $4.9bn in remaining performance obligations, with management targeting 2026 revenue of around $8.15bn.

Chicago-based Motorola Solutions [MSI], meanwhile, represents a larger, more diversified security platform encompassing both hardware solutions and their accompanying, subscription-based software support. Having separated from its consumer electronics business in 2011, the company offers mobile radios and network infrastructure alongside video security systems, and software and cybersecurity solutions for government bodies and enterprise customers. Its Q2 earnings beat Wall Street estimates, with adjusted EPS of $4.41 and revenue of $3.13bn, up 13.3% y/y. The firm expects full year sales to reach $12.975bn, with adjusted EPS of $17.62-17.72.

Here is how the fundamentals of the three stocks compare as of 23 September:

Source: Yahoo Finance

The investment case for AXON stock

Axon’s evolution from a hardware provider to a diversified public security platform is ongoing, presenting investors with both software-style growth and the cost structure and execution risks of a hardware manufacturer. While Taser-related hardware and training remains a key revenue stream, software and counter-drone and aerial security are gaining momentum, further accelerated by the adoption of AI solutions. Furthermore, limited growth prospects in the more mature US law enforcement market could be offset by growth internationally – the Vancouver Police Department expanded its use of Axon’s products in June, and international government clients represent nearly 50% of Axon’s estimated total addressable market. 

As a provider of widely used policing technologies, Axon Enterprise is no stranger to controversy, and the volatility that comes with it. While the firm envisions “a world where bullets are obsolete, where social conflict is dramatically reduced and where everyone has access to a fair and effective justice system”, its exposure to policing and mass surveillance represents a potential headwind, as negative public sentiment can become a major non-operating issue. 

Additionally, political exposure is another key factor to consider for investors in AXON. The stock has featured prominently in US President Donald Trump’s portfolio – in June, disclosures revealed that the president’s portfolio had acquired between $1m and $5m in AXON stock on 10 February, two weeks before US Immigration and Customs Enforcement (ICE) posted a notice for the purchase of 17,800 new Tasers, along with unlimited cartridges and training, worth $220m over five years. The announcement did not explicitly name Axon, and was a request for information rather than an awarded contract – still, as the manufacturer of around 90% of US Tasers and a major supplier for the federal government, Axon was not spared the resulting scrutiny. In July, President Trump’s portfolio gained an additional $250,000-500,000 of AXON stock.

In terms of valuation, concerns that the company cannot maintain its run of high growth have led some analysts to argue that the stock is already overvalued. In some ways, Axon’s stock performance in 2026 could represent a correction to an inflated valuation driven by AI-related enthusiasm. 

Of the 21 analysts surveyed by Yahoo Finance in September, eight rated the stock a ‘strong buy’, 10 rated it a ‘buy’ and the remaining three rated it a ‘hold’, with the average target price of $704.11 representing an upside of 56.25% from the 23 September closing price of $450.61. 

Conclusion

Axon Enterprise offers investors rare exposure to the technological buildout of policing in the US and internationally, and boasts an enviable record of strong growth tied to its increasing focus on software and aerial security solutions. However, some observers warn that the growth streak is unlikely to last, and any future gains have already been priced into the stock. Additionally, political concerns remain an important, if non-operational, issue for potential investors.