Axon Enterprise, Inc. AXON is benefiting from strength in its Software & Services segment. Revenues from the segment increased 36.2% year over year to $398 million in second-quarter 2026, following 35% growth in the first quarter.
Results benefited from growth in new users and broader adoption of premium offerings, including Axon Fusus, the AI Era Plan and Axon 911. Continued add-on purchases from existing customers indicate strong customer satisfaction and engagement. This ongoing expansion supports a growing base of annual recurring revenue (ARR).
However, the segment’s gross margin contracted 430 basis points (bps) year over year to 71.3%, while adjusted gross margin declined 380 bps to 75.1%. The decreases were primarily attributable to a greater mix of professional services revenues and new product launches. Nevertheless, software-only gross margin remained above 80%.
Axon’s focus on operational execution, disciplined investment and revenue growth is expected to support margin improvement in the quarters ahead. Strength across both segments, supported by strong customer engagement and increased adoption of its solutions across sectors, prompted AXON to raise its 2026 revenue growth outlook to approximately 32-34% from 30-32%.
The company reaffirmed its 2026 adjusted EBITDA margin forecast of roughly 25.5%, while targeting 28% adjusted EBITDA margin and average annual free-cash-flow conversion of 60% by 2028.
Segment Performance of AXON's Peers
Among its major peers, Woodward, Inc.’s WWD Industrial 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 growth in revenues for Woodward’s Industrial segment was driven by higher demand across marine transportation, power generation, and oil and gas markets.
Another peer of Axon, Teledyne Technologies Incorporated’s TDY Digital Imaging segment’s second-quarter 2026 revenues increased 12.7% year over year to $868.7 million. Higher revenues were augmented by increased demand for Teledyne’s infrared imaging detectors, components and subsystems for defense and commercial applications. Teledyne generated 52.3% of its total revenues from this segment in the quarter.
AXON’s Price Performance, Valuation and Estimates
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Shares of Axon have gained 6.9% in the past six months against the industry’s decline of 13.9%.
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From a valuation standpoint, AXON is trading at a forward price-to-earnings ratio of 42.61X, above the industry’s average of 32.10X. Axon carries a Value Score of F.
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The Zacks Consensus Estimate for AXON’s 2026 and 2027 earnings has been stable over the past 60 days.
The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).