2 Factors Dragging Down Axon Enterprise Stock: Should You Buy the Dip?

Axon Enterprise shares have fallen about 30% year to date and now trade at roughly 53x forward earnings, pressured first by AI disruption fears and then by concerns over valuation and high stock-based compensation. Last year SBC totaled $610.1 million, up nearly 60% from 2024, and management expects $590 million to $620 million in 2026. The stock could face further downside into its May earnings report if investors demand a lower entry point despite forecasts for earnings to quadruple from 2026 to 2028.

Analysis

AXON is less a broken story than a de-rated momentum winner caught between two valuation regimes: one that once paid for scarcity and one that now demands proof of operating leverage. The key second-order issue is that stock-based comp is functioning like a hidden dilution tax just as the market is reassessing duration risk; that combination typically compresses multiples faster than a simple growth scare because it hits both EPS quality and shareholder yield. If management cannot show SBC as a declining percentage of revenue over the next 2-3 quarters, the current rerating can persist even if top-line growth stays intact.

The market’s initial AI-disruption read-through looks overstated; in this case, AI is more likely to be an adoption catalyst for the platform than a direct disintermediator. The more important competitive dynamic is that larger enterprise software incumbents and niche public-safety vendors may now have a cleaner relative growth pitch if investors remain skeptical of AXON’s valuation premium. That said, the recent drawdown could ultimately widen AXON’s addressable opportunity, because agencies are more likely to delay refresh cycles on premium hardware/software bundles when budgets tighten, creating a near-term demand pause rather than a structural demand loss.

The main catalyst path is binary around the next earnings print and any guidance commentary on procurement timing, margin expansion, and SBC trajectory. Over the next 30-90 days, a modest miss or cautious commentary could force another 10-15% leg down because positioning is still vulnerable to de-rating; over 12-24 months, the stock can re-rate higher only if earnings growth proves durable without continued heavy equity issuance. The contrarian view is that the selloff may already be pricing in a slower, more mature AXON than the company is actually becoming, which creates upside if the market is underestimating the compounding value of its installed base and software attach rate.

Key Decisions for Investors

• Avoid initiating a fresh long AXON before the next earnings report; use the window into the print to let implied uncertainty work in your favor, as another 10-15% downside on weak guidance would likely create a better entry.
• If long-term constructive, scale into AXON only on a further de-rating toward low-40s forward earnings, where the risk/reward improves from sentiment-driven downside to fundamentally anchored upside over 12-24 months.
• For tactically bearish exposure, buy AXON put spreads expiring 30-60 days after the next earnings date; the setup favors a volatility event if management does not materially improve SBC or margin rhetoric.
• Pair trade: long KTOS / short AXON into the next quarter if you want defense exposure without paying AXON’s premium multiple; KTOS has more upside torque to incremental sentiment re-rating while AXON remains vulnerable to multiple compression.
• If AXON rallies hard on the print, fade strength via covered calls or trimmed longs; the stock likely needs multiple quarters of SBC normalization before a sustained re-rating is justified.