After getting battered in the second half of 2025 and in early 2026, shares of defense company Axon Enterprise (NASDAQ: AXON) just roared back to life. After reporting its Q4 financial results on Feb. 24, Axon shares surged nearly 18% the next day.
Notably, Axon hit its all-time high closing price near $871 last August. Prior to the company’s latest earnings report, the stock had taken around a 50% tumble from that point.
Meanwhile, even after its recent spike, Wall Street analysts continue to be bullish on this name.
So, what dynamics led to Axon’s huge sell-off, and are the fears around this company truly warranted?
Axon’s Sky-High P/E, SaaS Fears Come to Roost
Axon’s astronomical forward price-to-earnings (P/E) ratio, which peaked near 130x in August, surely had a lot to do with its fall. However, Axon was not spared at all in the 2026 “SaaSpocalypse,” accelerating its decline.
Prior to the company’s latest release, Axon shares were down over 20% in 2026. Many of the stock’s biggest single-day drops coincided with the largest drops in the overall software industry. This provides evidence that AI-displacement fears affecting the industry are hitting Axon as well.
However, this simultaneous sell-off seems misplaced when it comes to Axon. It indicates that investors are indiscriminately selling software-related names, rather than analyzing AI disruption potential on a case-by-case basis.
Why Axon’s Hardware-to-Software Flywheel Provides Protection From AI
Axon benefits from a key reality that is unlikely to change anytime soon: law enforcement relies heavily on physical intervention. AI cannot physically restrain or arrest an individual. This significantly limits AI-disruption risk among Axon’s primary customer base, law enforcement agencies.
Axon has a substantial software business, something that could theoretically face AI-displacement risk. But hardware continues to be at the core of its strategy. Take the product that led to Axon’s initial relevance: tasers. These are physical products that Axon has developed for over three decades. An AI startup can’t replicate tasers through “vibe-coding”.
Tasers remain a significant and rapidly growing revenue stream for Axon. Their sales grew by 32% in Q4 2025, accounting for one-third of the company’s full-year revenue. This leaves a large part of Axon’s business at minimal risk to AI disruption.
Furthermore, Axon’s software business is not separate from its hardware, but deeply integrated with it. Axon’s physical body cameras record videos, which are then stored on its digital evidence management platform, generating subscription revenue. Axon’s other software products largely rely on data that its body cams produce.
This includes Draft One, which creates an initial draft of officers' incident reports based on body camera audio. It saves officers time compared to fully manual report writing, allowing them to focus more on preventing and investigating crime.
To truly disrupt Axon’s software business, competitors would likely also need to disrupt its body-cam business. It is not inconceivable for an AI startup to develop body cameras and then layer software on top of them. However, this would require agencies to rip out their already established systems, retrain employees, and face scrutiny if new systems mishandle evidence. With the company already having built up strong trust and familiarity among agencies, this would be a tall task.
Additionally, as Axon gathers more data from its devices, the effectiveness and breadth of its software solutions should improve over time. This accumulated data from its hardware gives the firm a strong head start on any would-be competitors.
Analysts Eye +20% Upside After Axon’s Big-Beats
Axon’s latest earnings release confirms the strength of its business. The firm blew past expectations on sales and adjusted earnings per share (EPS), with revenue soaring by 39%. The company’s future contracted bookings rose by 43% to $14.4 billion. This is the value of signed contracts that Axon still needs to fulfill. Although this is not guaranteed revenue, it shows that the firm has a huge backlog compared to the $2.8 billion in total revenue it generated in 2025.
Axon also posted a highly impressive net revenue retention rate of 125%. This means that Axon’s existing customers increased their spending by 25% versus last year, showing that its offerings are providing more and more value.
By 2028, Axon is targeting revenue of $6 billion, which implies strong annual growth of 29% over the next three years. Axon also hopes to expand its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) margin by 250 basis points to 28%.
The MarketBeat consensus price target for Axon sits near $763, implying over 45% upside in shares. However, analysts lowered their price targets after the company’s report. The average of these updated targets is much lower, near $654. Still, this figure implies substantial upside of around 25%. Note that these lowered targets largely reflect analyst adjustments due to Axon’s precipitous fall, not an unfavorable view of the firm’s report.
Overall, Axon’s outlook going forward looks promising, and AI-disruption fears around this name appear overblown.
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The article "Axon Got Caught in the SaaS Crash—Its Earnings Say That Was a Mistake" first appeared on MarketBeat.
