Axon’s Growth Streak Continues, but a Rich Price Tag Has Markets Tapping the Brakes

Axon’s Growth Streak Continues but is it Too Expensive?

Axon Enterprise just had its third-quarter 2025 earnings call, and if you’re an investor, the report was a perfect example of saying all the right things while paying for all the right things.

For seven consecutive quarters, the company has posted revenue growth of 30% or more, a blistering pace that continued with a 31% year-over-year jump to $711 million in Q3. That’s an amazing consistency and its one of the reasons Axon has been one of the best performing stocks in the market.

But before we dive into the numbers and the big strategic moves, let’s quickly reset what Axon is.

Beyond the TASER: Building the Nervous System of Public Safety

If you hear “Axon,” you probably think of the TASER, the iconic energy weapon that changed policing. While that’s still a core part of the business—with the new TASER 10 driving sales internationally —it’s almost a legacy product at this point.

Today’s Axon is a technology ecosystem company, often describing its mission as building the nervous system of a modern police agency.

This system has three main parts:

1. Sensors: These are the “eyes and ears.” Think Axon body cameras (like the Axon Body 4) , in-car camera systems, and drones.
2. The Cloud (SaaS): This is the “brain.” It’s the massive, high-margin software business—historically known as Evidence.com—that stores, manages, and analyzes all the video and data those sensors collect.
3. Real-Time Operations: This is the “connective tissue.” Through acquisitions like Fusus, Axon creates real-time crime centers that let dispatchers see live feeds from body cams, city cameras, and drones, all on one screen.

Now, with its latest acquisitions, Axon is making a bold play for the very first step in any emergency: the 911 call itself.

📈 The Good News: The Growth Engine is Firing on All Cylinders

Financially, the company is a juggernaut. The Software and Services segment—the high-margin brain—was the star, growing 41% to $305 million. Annual Recurring Revenue (ARR) also shot up 41% to a whopping $1.3 billion.

Even more impressively, Axon’s Net Revenue Retention hit 124%. In plain English: existing customers are not only staying, but they are also spending 24% more, on average, than they did last year. They are buying into the full ecosystem, with some deals approaching $600 per user per month.

This growth isn’t just happening in its core U.S. market.

International is Breaking Through

For years, Axon has talked about the massive opportunity in Europe. This quarter, they delivered the proof. The company highlighted two of its top-ten deals came from international markets and, more importantly, a nine-figure cloud deal closed in Europe in October.

Leadership was visibly excited about this, calling it the alpha patient. Getting the first major, hesitant EU customer to go all-in on the cloud is a watershed moment that could unlock the floodgates for the rest of the continent.

New Markets are Scaling Fast

The strategy of expanding beyond local police is also paying off handsomely.

• Corrections: Bookings for prisons and jails have more than doubled year-to-date, contributing two top-10 deals in Q3.
• Enterprise: Axon is making a huge push into the private sector (think retail, healthcare, and logistics) with a new, smaller body cam called the ABW Mini. They believe they’ve finally hit a product market fit for this segment , and early trials are already showing statistically significant reductions in assaults on staff.
• New Products: Bookings for its newer offerings—Axon Air (drones), Dedrone (counter-drone), and Fusus (real-time ops)—are up more than 3x year-to-date.

📞 The Big Move: Axon is Coming for Your 911 Call

Hopefully that doesn’t sound too ominous but the biggest strategic news from the call was the company’s continued move into the 911 call center, built on the foundation of two key acquisitions: Prepared and Carbyne.

Axon’s leadership explained that today’s 911 system is an inefficient, 1970s-era “game of telephone”. A person calls, an operator types, that text is sent to a different person (a dispatcher), who then reads it over the radio to an officer . Information gets lost, and it’s painfully slow.

Axon’s new “Axon 911” strategy aims to fix this with a classic 1-2 punch.

1. Prepared: The AI Play Prepared is a low-friction AI overlay that can be installed in any call center, fast. One major U.S. city installed it in just a month. It makes things easier for call-takers by acting as an intelligent assistant. It can autonomously handle up to half of non-critical calls and, on critical calls, it listens, transcribes, and collects data so the human operator can focus on the human side of helping people in crisis. The results are immediate: that city saw a 33% reduction in calls requiring a human operator during the busy 4th of July weekend.

• Carbyne: The Cloud Foundation If Prepared is the smart software, Carbyne is the modern plumbing. It’s built to replace the enormous costs and glacial pace of legacy on-prem call center infrastructure with a highly resilient cloud platform. Axon sees this as a repeat of its Evidence.com playbook: just as it moved police data centers to the cloud, it now plans to move their call centers to the cloud. It certainly worked there so why not here.

🤔 The “Struggles” (Or Are They Really Just Investments?)

So, if revenue is booming, retention is stellar, and the strategy is revolutionary… what’s the catch? Why was the stock reportedly soft after the news?

There are no real struggles, only costs.

The company’s adjusted gross margin ticked down by 50 basis points, and there was one clear culprit: tariffs. This was the first full quarter Axon felt their impact, and it’s a direct, unavoidable hit to profitability. It did mean a miss on the EPS side which the market didn’t love considering the lofty price tag.

The other drag on margins was a planned increase in R&D spending. Axon is investing heavily in future growth, including vehicle intelligence (ALPR), the new ABW Mini camera, and new AI features.

In the analyst Q&A, this theme continued.

• One question pointed out that Q3 bookings might have seemed a little soft. Leadership swatted this down, saying they fully expect to hit their full-year growth targets, which implies a strong Q4 is on the way.
• Another astute question noted that Axon is signing more 10-year contracts, asking if that was just pulling future growth forward. Management was clear: even when normalized to 5-year deals, the bookings growth rate is still accelerating. Still there is certainly a renewed focus on making sure growth is still there and margins aren’t fall behind and that’s fair given that this is certainly a pricy stock.

⚖️ The Verdict: Valuation and High Expectations

This brings us to the stock price. Axon is a growth story that is playing the “long game”. It is purposefully spending money now—on R&D and strategic acquisitions like Carbyne—to secure its dominance for the next decade.

The company is delivering on its commitment to a 25% adjusted EBITDA margin for the year and is running at a 55-plus versus the Rule of 40, an excellent metric for a software-enabled hardware company.

However, the market is fickle. When a stock trades at a high-growth premium, it’s not enough to just meet lofty expectations. Any sign of a margin squeeze—even a well-justified one like tariffs or future-proofing R&D—can make short-term traders nervous.

After all, even after the recent dip, Axon trades nearly at a 17x multiple to sales with a forward earnings multiple north of 90. While stock is free cash flow positive, a lot of that is on the back of high st0ck-based compensation which dilutes shareholders and is a real cost to account for.

Any time you trade at such multiples, any sign of softness will mean the market will react quickly and can punish the stock heavily. In order for returns to be solid at this valuation, this is a stock that will need to continue to grow at 20%+ for years and years and improve margins.

However, that’s not a crazy bet to make given the potential for international expansion and acquisitions driving new business and cross-sell opportunities.

The Q3 report confirmed the long-term thesis is more intact than ever. Axon is successfully expanding into new markets, its international breakthrough is finally here, and its 911 strategy creates a moat that could be unshakable. But in the short term, that future-proofing comes with a price tag, and that’s the struggle investors were reacting to. I do own some shares of Axon but at this point, it’d need to take a decent sized dip for me to add to my position.

Disclosure : I am long AXON and maybe be long other companies discussed in this article. This is not investment advice, please discuss any investment decisions with a qualified investment professional.