Axon: An Exceptional Founder-Led Business for Long-Term Investors

Leaning into AI this niche market leader will thrive

Axon Enterprise, Inc. (AXON) is a company I have admired for quite some time. This is a growing business excelling in its niche market and its founder continues to lead this company in the right direction. I’ve been reluctant to buy shares in the past because of the company’s high valuation but after the company’s selloff over the last year, I’ve added this company to my portfolio.

Despite under-performing the market year-to-date I remain convinced this will be an outperforming stock in the long-term.

Let’s dig into Axon and the company’s recent financial results as I explain why long-term investors should look at this dip as a buying opportunity.

The Company

Axon was founded by Rick Smith back in 1993 after two of Smith’s friends were killed in a road rage incident. Smith believed that through the use of technology, he could help make the world a safer place and thus Axon Enterprise was born. The company’s mission is to protect life. This global leader in public safety has an ambitious goal to reduce all related gun deaths between police and the public in the United States by 50% by 2033.

The company is made of two reportable segments: Software and Sensors and TASER. Products in the Software and Sensors segment include sensors, body cameras, in-car cameras and numerous other sensors and associated software. The TASER segment includes conducted energy devices (“CEDs”) virtual reality training, and so much more.

Axon has built an ecosystem in which they support their customers with training, while in the field (communicate and act) and lastly when it’s time to analyze data and create reports as you can see below:

With a net revenue retention rate of 124%, a net promoter score of greater than 60, and with 95% of revenue tied to subscription plans, it’s clear to see Axon has beloved products which are very sticky. This makes switching from Axon much more difficult and as Axon continues to build out their portfolio, the expanded optionality makes the investment case for this business even more compelling.

Speaking of new opportunities, let’s discuss Axon’s total addressable market and where the business can go from here.

TAM and Future Opportunities

Axon believes they have a total addressable market of $159 billion. As you can see from the graphic below, Axon sees the largest potential in international markets, with enterprises and with domestic state and local governments:

Axon believes they have multiple growth drivers that can continue to drive the business forward. These growth drivers include product upgrades, creating new categories, modernizing old technologies, solving universal problems, and expanding globally.

Also, as you can see below, domestic public safety spending has continued to grow over the last few decades, and it’s tough to believe this trend will reverse any time soon:

I believe international growth can be a significant driver moving forward, as well as revenues from outside of the United States now accounting for 20% of total revenue.

AI To Save The Day?

There is this perception that AI tools such as Claude would streamline many tasks and thus greatly reduce or eliminate the need for many SaaS services.

And I’d say there’s still some perception that a lot of these stocks will be impacted by AI, but I would argue that Axon is in an excellent position to continue to succeed and be a leader because of AI enhancements.

Let’s discuss some of these exciting AI enhancements. The first is Axon Vision, which focuses camera feeds on specific activities (like physical fights and unauthorized access) so there’s a level of privacy by avoiding facial recognition.

Next is Axon Guardian which provides real-time field monitoring to detect situational escalation and officer distress so backup can be triggered if needed.

Axon Assistant operates as a CJIS-compliant AI interface, via chat or voice, across the entire Axon platform so there’s cross-device workflow persistence.

Next, there’s Form One which helps automate the process of filling out forms and paperwork. Brief One acts in a similar fashion as it helps streamline judicial workflows and tasks.

Finally, Axon has Dedrone and Drone as First Responder. This is vital counter-drone technology that helps mitigate threats. Dedrone bookings alone are up 500% as this technology has been used to protect the 2026 Super Bowl, the Kentucky Derby and now the World Cup.

To me, Axon is certainly focused on AI and these enhancements will make Axon’s ecosystem that much more impenetrable. I’d say these AI initiatives are making Axon’s platform even more sticky, in that it’s creating this flywheel where the hardware feeds the data, the data feeds the software, and the AI feeds the efficiency. Ultimately, this is making it so the customers for Axon are locked in for life. Their moat is widening, in my opinion, and it’s in many respects to these improvements in the AI stack.

I think this quote from CEO Rick Smith on the company’s Q1 earnings call perfectly summarizes Axon’s AI integration and how AI will not hinder but help Axon’s business moving forward:

Everything we do is built on trust. Our customers move faster than anyone else to adopt AI because they trust how we build it. Carefully, deliberately with the hard conversations happening upfront, not after the fact. That’s what makes our technology more durable, more trusted, more widely adopted. And that trust is what earns us the privilege to keep pushing forward. Three decades of building, millions of sensors, millions of users. Trillions of data points flowing through one connected network. Every camera, every device, every line of code, it’s all been leading here to this moment, the AI breakout. And no one in public safety is positioned like we are. Positioned to change the world, positioned to create extraordinary value for our shareholders, our customers and society itself.

Like any investment, there are risks to Axon, which I’ll discuss next.

Risks

I believe that product liability and reputational risks are the biggest threat the company is facing. There could be an injury or death caused by one of Axon’s products or perhaps misuse of body camera footage. Such an issue could result in lawsuits and loss of brand confidence which would ultimately lead to a loss in market share.

Due to Axon’s numerous AI initiatives and the company’s current technology associated with many of Axon’s software solutions, there could be cybersecurity attacks or a breach in security data, which again would negatively damage the company’s reputation.

Lastly, I think you could argue there’s a reliance on government spending, but I would argue that Axon’s products are so sticky that governments wouldn’t want to switch and would need to continue using Axon solutions. Due to these high switching costs, I think it’s unlikely governments would move away from Axon and it’s also why I don’t think Axon faces as much competition in this niche market.

Financials

In Q1 2026, Axon generated revenue of $807 million, which is a 34% increase compared to Q1 2025. This is the company’s ninth consecutive quarter of 30% plus growth, which is quite the achievement.

Software and Services generated revenue of $355 million, which is an increase of 35% compared to the prior year’s first quarter. AI revenue grew by over 700% which is a clear illustration that unlike some other SaaS platforms, Axon is clearly monetizing their AI offerings.

Gross margins did decline due to tariffs as well as high professional services costs and product deployments such as Dedrone. Yet, overall the business was able to increase their net income and EPS compared to Q1 2025 as you can see below:

However, I do think it’s worth noting other income was notably higher and contributed to much of the increase in net income. This income was due to closing some strategic equity interest investments and not from the actual business.

Looking at any of Axon’s forward-looking indications, there’s a lot to like as these metrics show customers continue to adopt more products and services and Axon is a sticky platform with high customer retention:

After this solid quarter, Axon is raising their full-year guidance. The company now expects revenue growth in the range of 30% to 32% (up from 27% to 30%). Axon expects adjusted EBITDA margin to be 25.5%, which was consistent with prior guidance. Lastly, even with their investments, management expects free cash flow to be roughly $450 million for the full fiscal year.

Axon has a very nice balance sheet although cash has come down since December 31, 2025, due to some acquisitions. But the business still has more current assets than current liabilities and a growing retained earnings balance which is a positive:

Management

As previously mentioned, Rick Smith is the founder and current CEO of Axon. Smith is a rare visionary who has dedicated his life to protecting life and improving public safety. In 2019, Smith published, “The End of Killing” in which he argued killing was due to technology problems and he offered a roadmap to solve these unnecessary deaths. Smith has a degree from Harvard and an MBA from the University of Chicago.

The company’s Chief Operating Officer and Chief Financial Officer is Brittany Bagley. Prior to joining Axon, Bagley was the Chief Financial Officer at Sonos (SONO).

I am a big believer that culture can play a factor in the long-term results for a company and research has proven the best companies to work for have beaten the overall market. The Glassdoor reviews for Axon are excellent with the majority of employees stating they would recommend it to a friend and employees certainly approve of Smith as you can see below:

I particularly am fond of companies where founders have skin in the game because the founders care more about the organization, thus they are able to maintain their long-term vision which leads to market-beating returns. As noted in Axon’s most recent proxy file, Smith holds just less than 4% of all shares beneficially owned which is a great sign.

Valuation

However you choose to view Axon, most would still view it as rather expensive. As Axon is still growing the business I think prices to sales or EV/Sales are the better valuation metrics for this company. While Axon's trailing and forward P/S ratios are considerably higher than the sector median, the company's current ratios are still below the company's historic five-year averages, and as you can see below, the company's forward P/S ratio has continued to decline over the past year:

Data by YCharts

From another perspective, I’ve created a reverse discounted cash flow model for Axon. Considering Axon’s usage of cash this year for some significant acquisitions this year, I continue to believe it’s more appropriate to use the December 31, 2024, free cash flow value of $330 million given the business’s ample growth opportunities. Using that figure with a discount rate of 10% and a terminal growth rate of 4%, the business would need to continue to grow by 28% annually to justify today’s current stock price:

While 28% might sound difficult to obtain, analysts do expect Axon to grow at this rate for at least the next several years. The business has shown it can steadily grow revenue at a rate north of 30%, plus with the continuing international expansion and ongoing investments in AI I think it’s very likely Axon can hit this growth target.

Wall Street also continues to view Axon as a good investment, with most analysts stating the business is a “Strong Buy” or “Buy.” Wall Street’s average price target for Axon’s stock illustrates the strong conviction in future upside:

Conclusion

I continue to be extremely bullish on this founder-led business. Axon is creating an AI stack that is unmatched in the industry, and they will continue to remain the leader in this niche market.

While some may argue Axon is overvalued, I don’t believe it is currently. I think 30% growth is achievable for this business, as it’s had 30% growth for nine consecutive quarters now. With Axon’s impressive AI enhancements coupled with their current products and services being so sticky and retention being so high with their customers, I believe Axon can and will continue to see impressive future growth.

I’ve continued to add to my position during these last few months, and I believe long-term, growth-oriented investors should continue taking a look at Axon.

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This article is for informational and educational purposes only and does not constitute financial advice. Always do your own due diligence before making investment decisions.

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