New Price Target for This Public Safety Holding After AI Advances

Coming off Axon Enterprise’s AXON presentation at the William Blair Growth Stock Conference earlier on Thursday, we are raising our price target for Axon shares to $825 from $750.

While some, like Bank of America BAC, have upped their AXON price target to $895 from $750 following these presentation comments, we’re lifting our price target to $825 to reflect AI adoption and enterprise penetration. As we get more confirmation of those, we’ll look to revisit our AXON price target accordingly.

As we raise our price target, we are also reiterating our Two rating. Part of that reiteration stems from the relative strength index (RSI) level we see for the shares, which has passed 75, indicating they are overbought at current levels. Should we see the shares chug higher in the very near term, the prudent move may be to lock in a slice of those gains. We say that in part because the shares are up meaningfully from where they were in late February and early March, where we rebuilt the Portfolio’s current position.

We will reset our pick-up point for AXON shares to $635, and for now, we’ll maintain our current panic point.

Axon’s Presentation Comments

During its presentation at the William Blair conference, the Axon management team did a commendable job explaining its Taser, body camera and cloud as well as its burgeoning drone and enterprise offerings. Management confirmed that, as of now, U.S. state and local public safety is its largest market followed by International, then Enterprise and Federal. What was interesting to us was management’s comment that it expects that mix to change in the coming years as the company makes greater inroads with body and other cameras as well as video aggregation.

After reiterating that its largest win in the company’s history occurred in the prior quarter with an enterprise customer, management framed the enterprise opportunity this way: Walmart WMT alone has 2.1 million retail workers with 1.6 million in the U.S. compared to about 900,000 cops in the U.S. and about 150,000 federal law enforcement officers. We expect to have more clarity around Axon’s recent enterprise win in the coming months, but during the presentation, the management team shared that the customer is using its products to “consolidate 300,000 video streams across their warehouses, their trucks, their logistics hubs, et cetera., in their retail locations and so forth.”

While we could speculate that the customer is Amazon AMZN, the comment on retail locations suggests it could be Walmart or one of its large retail competitors.

Axon management also explained how all the data they collect across body and other cameras and from drones leaves it sitting on a tremendous amount of data that it is using to train its AI applications. While it uses it for that purpose, Axon has also introduced fixed cameras to its portfolios, which sit at intersections taking in data. That data could be used to flag license plates or collect video as an incident or accident unfolds. Axon intends to utilize AI to detect such incidents and alert appropriate public safety personnel. We see that as part of Axon’s plan to help public safety do more with less, while its margins benefit from the corresponding AI adoption.

Management also discussed how it plans to bundle its growing list of AI products into a recurring revenue stream. Currently, Axon has six AI products available, which are being sold for $200 per month even though the a la carte pricing for those tools is over $200 per month. Like its existing DraftOne, BriefOne and real-time translators, these AI products are designed to drive productivity at a time when police force applications are falling, leading to staffing and coverage shortages.

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At the time of publication, TheStreet Pro Portfolio was long AXON, BAC and AMZN.