This Holding Raises Revenue Guidance and We See More Gains Ahead

Shares of Axon Enterprise (AXON) are rallying following the company’s better-than-expected Q1 2026 results and increased top-line guidance for the coming year.

Before we get into it, let’s remember that Q1 tends to be the seasonally weakest for Axon, accounting for about 22% of full-year revenue. Axon management will be making the investor conference rounds in the coming weeks, and that incremental color on the current quarter as well as other developments, will provide us with better insight should we need to adjust our current $700 price target. Others are moving their price targets, with JPMorgan lifting its to $755 while others cluster between $675 and $700.

Q1 2026

Axon’s top line came in just above $807 million, up more than 33% year over year, and easily ahead of the $779 million market consensus. Color behind that increase was the higher margin Software and Service revenue, climbing 35% year over year, with AI products up 700% compared to year-ago levels. Granted, AI product sales in the year-ago quarter were rather small, but as overall AI adoption rises and usage expands, the same is happening in the public safety market and at all large domestic law enforcement agencies.

Product sales climbed 33% as the company continued to expand its reach in law enforcement and corrections markets, as well as enterprise security and healthcare. Product sales also benefited from counter-drone revenue soaring 300%, with bookings up 500% year over year. However, the ramp in newer products as well as tariffs and supply constraints weighed on margins compared to the year-ago quarter. That led adjusted EBITDA margins to come in at 25.0%, however, management reiterated its 25.5% target for 2026. That should be a relatively easy target to hit as these newer programs mature, and the company benefits from greater operating leverage as revenue rises and the mix improves.

Several weeks ago, we made the point that Axon is both a hardware and services company, and that means it, along with other companies, is feeling the pinch of supply chain issues and memory availability. For that reason, management stepped up its inventory procurement in the quarter to ensure ample supply to meet shipment expectations and demand in the coming quarters.

Future contracted books, a key metric that we watch for Axon, dipped to $14.3 billion exiting Q1 2026, down from $14.4 billion in the prior quarter. Looking back over the last several years, that pattern is typical and matches the quarter being the seasonally weakest. However, the company’s deferred revenue climbed to $1.05 billion, which offers nice revenue coverage for management’s upsized revenue guidance for 2026. That new guidance calls for 30% to 32% year-over-year growth compared to prior guidance of 27% to 30%. That implies 2026 revenue between $3.6 billion and $3.7 billion.

Our View

All in all, we would characterize Axon’s Q1 2026 results and guidance as very solid and reaffirming of its strategy to leverage its hardware business to grow the higher-margin software and services business, leaning into AI along the way. While one might characterize it as a razor and razor-blade business, we would argue differently, given the tighter relationship between Axon’s software and hardware that allows for real-time translation and other capabilities. That unified system marries software and sensors with a real-time connection to drive productivity. That productivity is poised to increase as AI adoption increases in public safety and law enforcement, and in many respects, it has to because of law enforcement and public safety staffing shortages.

As you know, pain points and the companies that address them make for good investments, though there will be a few bumps near-term, including ramping newer programs and supply chain constraints. To us, the more important indicators to watch for will be management’s comments about AI adoption and expanding usage of its body cameras and drone products when management presents at three investor conferences between May 12 and May 27:

May 12 to 21: Annual Needham Technology, Media & Consumer Conference

May 13 : BofA Securities 33rd Annual Industrials, Transportation & Airlines Key Leaders Conference

May 19 : J.P. Morgan 2026 Global Technology, Media and Communications Conference

During those presentations, we’ll also be listening for comments about future contracted bookings, as well as those about Axon’s 2028 goal of $6 billion in revenue and 28% adjusted EBITDA margins.

Ahead of those presentations and earnings from competitor Motorola Solutions (MSI) later this week, we see many reasons to remain owners of AXON shares, but we also recognize the shares face resistance near $449 and again near $494.

Upbeat management presentations in the coming week may be enough to break through that first barrier, but we will need to see further gains in future contracted bookings and margins to propel them through the second. To us, that makes AXON shares more of a second-half story, but given our long-term focus, the pain point that the company addresses and current position size, we can play the long game. We will look for opportunities to improve our cost basis where we can.

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At the time of publication, TheStreet Pro Portfolio was long AXON shares.