Self defense company AXON (NASDAQ: AXON) reported Q3 CY2025 results beating Wall Street’s revenue expectations, with sales up 30.6% year on year to $710.6 million. Guidance for next quarter’s revenue was better than expected at $752.5 million at the midpoint, 1.3% above analysts’ estimates. Its non-GAAP profit of $1.17 per share was 24.1% below analysts’ consensus estimates.

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StockStory’s Take

Axon’s third quarter was marked by robust revenue growth and a negative market reaction, with shares falling significantly after results. Management attributed the top-line momentum to strong demand across software, services, and connected devices, driven by adoption of new AI-powered offerings and deeper customer relationships. CEO Patrick Smith emphasized the rapid uptake of Prepared and Carbyne, highlighting their immediate impact on 911 call center efficiency, while CFO Brittany Bagley pointed to broad-based international and corrections sector wins. However, management acknowledged a notable contraction in operating margin, citing tariffs and increased R&D investment as primary headwinds.

Looking ahead, Axon’s guidance reflects management’s expectation for continued top-line growth, underpinned by product innovation and expansion into new markets. The company is investing in AI capabilities, such as the AI Era Plan and Axon 911, and deepening its presence in enterprise and international segments. Bagley noted, “We are scaling up investment in our products and sales team to go after the entirety of what’s in front of us,” but also cautioned that ongoing tariffs and mix shifts could pressure margins in the near term. Management remains focused on balancing growth with profitability as strategic investments continue.

Key Insights from Management’s Remarks

Management credited the quarter’s revenue growth to expanding adoption of its software ecosystem, success with recent acquisitions, and momentum in international and enterprise markets. Margin pressure stemmed from tariffs and increased investment in development.

• AI-powered software traction: The AI Era Plan was cited as Axon’s fastest booked software product to date, with AI bookings expected to comprise over 10% of U.S. state and local bookings this year. This reflects the growing demand for automation in emergency response workflows.

• Recent acquisitions outperformed: Newly acquired businesses, including Fusus, Dedrone, and Prepared, delivered adoption rates above initial expectations, providing both immediate impact and long-term growth potential. Management highlighted the integration of Prepared and Carbyne as foundational for the next phase of Axon’s ecosystem.

• International and corrections momentum: Major international cloud deals, including a significant contract in Europe, and acceleration in corrections sector bookings contributed meaningfully to growth. Management described these as early signs of larger deals to come as cloud adoption spreads.

• Tariff-driven margin compression: Gross margin declined due to the first full quarter of U.S. tariffs on connected devices. Bagley described this as a “one-time adjustment,” with future margin mix expected to benefit from higher software contributions.

• Investment in new product lines: Strategic R&D spend increased for vehicle intelligence, automated license plate reading, and the Body Workforce Mini camera, aimed at strengthening Axon’s competitive position and supporting future revenue streams.

Drivers of Future Performance

Management’s outlook is shaped by ongoing investment in AI-driven solutions, expansion into enterprise and international markets, and the need to navigate margin headwinds from tariffs and product mix.

• Continued AI and software investment: Axon plans to accelerate development of AI-enabled products such as Axon 911, live translation, and policy chat. Management believes these innovations will drive higher value bookings and expand long-term customer relationships, particularly in public safety and enterprise verticals.

• Margin headwinds from tariffs and product mix: Ongoing tariffs on connected devices are expected to keep gross margins below historical levels, while increased R&D and integration costs from recent acquisitions will weigh on profitability. Management expects software growth to gradually offset these pressures as new products scale.

• Growth in enterprise and international: Rapid adoption of Body Workforce Mini and increased penetration in corrections and international markets are expected to be key growth drivers. Management sees the enterprise segment as a major opportunity, with early customer demand and expanded use cases for body cameras and cloud services.

Catalysts in Upcoming Quarters

In coming quarters, the StockStory team will be monitoring (1) the pace of customer adoption and integration of Prepared and Carbyne within the Axon ecosystem, (2) the impact of tariffs and ongoing product mix shifts on gross and EBITDA margins, and (3) the expansion of enterprise and international bookings, especially around new body camera and drone solutions. Execution on R&D investments and the scaling of AI-powered offerings will also be key determinants of future performance.

Axon currently trades at $563.99, down from $709.34 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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