For security and defense company Axon Enterprise (NASDAQ: AXON), Q1 earnings were exactly what it needed to take its 2025 returns from decent to delightful.
[content-module:CompanyOverview|NASDAQ: AXON]The company’s results massively impressed markets, leading to shares rising over 14% afterwards. The broadly positive effects of the United States and China trade deal also boosted Axon shares.
Combining these moves, Axon shares are now up approximately 22% in 2025 as of the May 13 close. Just prior to the earnings release, shares were up only 1% on the year, essentially equal to the return of Axon’s outperforming industrials sector at that time.
Analysts raised their price targets on Axon after the results. May price target updates tracked by MarketBeat place an average price target of around $742 on the stock. However, this implies upside in Axon shares of only around 3% compared to its May 13 closing price. So, what are the prospects for Axon going forward? Despite being a massively profitable investment over the past several years, is the company’s valuation becoming stretched?
AXON Earnings Hit on All Cylinders, Adds Strong Commentary
Axon impressed with its results both on the top and bottom lines. The company saw sales grow by 31% to nearly $604 million, surpassing expectations of 27% growth. The firm’s adjusted earnings per share (EPS) also rose by just under 23% to $1.41, over double the 10% growth rate anticipated. Axon also upped the midpoint of its revenue guidance to $2.65 billion for the full year. This was slightly higher than Wall Street had hoped.
The company also provided strong underlying news. It noted that it achieved record bookings in Q1 among international customers. International customers represent a significant growth opportunity for Axon, where it believes the total addressable market is $58 billion.
The company also noted in its earnings call that its Draft One product now has over 30,000 active users, making it its fastest-adopted software product. This product creates a transcript of user interactions recorded on the company’s body cameras. Axon says police officers spend 40% of their time writing incident reports. Draft One can significantly reduce the time it takes to write these reports through its transcription.
As of January 2024, the number of sworn police officers was down 5% from 2020 levels. Thus, there is likely a significant need for officers to be more efficient with their time, something Draft One can aid with. The Fort Collins Police Department said Draft One decreased the time officers spent writing incident reports by 67%.
Defense and Border Spending Boosts Could Be Big for Axon
Adding more good news around Axon is the fact that the United States Congress is boosting defense spending in a continuing resolution passed in March. It includes billions more in spending for the Department of Defense (DoD) and the Department of Homeland Security (DHS). This resolution funds the government through September 2025.
[content-module:Forecast|NASDAQ: AXON]For the federal government's fiscal year 2026, starting in October 2025, President Trump wants a much larger boost in spending for DoD and DHS. The White House’s proposal calls for a 13% increase in DoD spending and a massive 65% increase in appropriations to DHS. Axon works with the U.S. Border Patrol, which is under DHS. The proposal would increase DHS spending by around $42 billion, with much of that spending going toward border security.
This funding proposal faces many challenges before it can become a reality. However, Axon’s relationship with the U.S. government could grow significantly if it passes.
Axon believes its translation technology could be greatly beneficial along the border. Built into Axon body cams, the tech translates foreign languages in real time, allowing for communication when a human translator is unavailable. Axon executive Patrick Smith shared that a Border Patrol commander asked him for this technology since officers deal with many languages at the border.
Axon Outlook: Cautious Near Term, Bullish Long Term
Despite all this great news, it is hard to argue that Axon shares are not looking stretched. The stock is now trading at a sky-high forward price-to-earnings multiple of 116. Due to this, it wouldn’t be surprising to start seeing downward pressure on Axon shares in the coming months.
However, in the long term, the bull case for Axon continues to look strong. The company regularly rolls out new innovative products with solid use cases, like the ones mentioned earlier. This, along with chances to grow U.S. government and international relationships, can lead to significant gains over time.
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