Strength in Software & Services Unit Drives AXON: Can the Momentum Sustain?

Axon Enterprise, Inc. AXON is witnessing strong momentum in its Software & Services segment.  After witnessing a year-over-year 35% jump in revenues in first-quarter 2026, revenues from the segment increased 36.2% to $398 million in the second quarter.

The results were driven by an increase in the number of new users and increased adoption of premium software offerings, including Axon Fusus, the AI Era Plan and Axon 911. Existing customers are consistently returning to purchase additional services, reflecting strong customer satisfaction and engagement. This ongoing expansion supports a growing base of annual recurring revenue (ARR).

However, the segment’s gross margin declined 430 basis points (bps) to 71.3% from the year-ago figure. Also, the adjusted gross margin fell 380 bps to 75.1%. The declines primarily reflected a greater mix of professional services revenues and the introduction of new products. Nevertheless, its software-only gross margin remained above 80%. The company’s focus on effective cost management and revenue growth is expected to improve its margin performance.

Strong customer alignment, increased adoption across sectors and continuous product innovation led Axon to issue bullish guidance for 2026. The company currently expects total revenues to increase approximately 32-34% year over year compared with 30-32% guided earlier.

Segment Performance of AXON's Peers

Among its major peers, Kratos Defense & Security Solutions, Inc. KTOS Government Solutions segment’s second-quarter 2026 revenues amounted to $379.7 million compared with $278.3 million in the year-ago quarter. Higher sales of Kratos’ Defense and Rocket Support, Turbine Technologies, Microwave Products and Training and Cyber units aided the results. Kratos Defense derived 82.8% of its total revenues from this segment during the quarter. 

Its another peer, Woodward, Inc.’s WWD Industrial business segment reported net sales of $401 million in the third quarter of fiscal 2026, up 26% year over year. Woodward generated 36.1% of its total sales from this segment in the quarter. The revenue growth for Woodward’s Industrial business segment was driven by higher demand for power generation equipment and services, along with favorable conditions in marine transportation and steady investment in parts of oil and gas.

AXON’s Price Performance, Valuation and Estimates

Shares of Axon have gained 37% in the past six months against the industry’s decline of 2.6%.

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From a valuation standpoint, AXON is trading at a forward price-to-earnings ratio of 63.76X, above the industry’s average of 42.03X. Axon carries a Value Score of F.

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The Zacks Consensus Estimate for AXON’s 2026 earnings has inched down 0.6% over the past 60 days.

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The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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