Why We’re Keeping Our $700 Price Target on This Holding as Shares Drop

Shares of Axon Enterprise (AXON) are giving back some of their recent gains following last night’s Q2 2026 earnings report as the company bested Wall Street forecasts and lifted its 2026 revenue guidance. Similar to what we saw with Advanced Micro Devices (AMD), Axon’s revised guidance did not clear the upper end of 2026 revenue expectations following the sharp climb in the stock over the last several days.

That explains some of AXON’s move lower Thursday morning, but management also commented about margin pressure rising in the current quarter from two fronts. First is the negative impact of higher component costs, especially memory, now that Axon has worked through existing component supplies. Axon won’t be the only company feeling these pressures. Second is the ramping of the DeDrone, Axon Body Mini, and Axon 911 solutions, but that should improve as volumes increase. Supporting that likelihood is the company’s continued step up in future contracted bookings.

Neither of those are groundbreaking developments for those of us who have been following Axon closely, but the new product ramp also means the company should continue to deliver robust earnings growth in the coming quarters. Q2 2026 marked the compaany’s 10th consecutive quarter of revenue growth above 30%, and bookings received in the quarter were up 20%. Similar to our comments this morning about Costco (COST) lapping tough comparisons, that 20% figure for Axon is on top of the nearly 50% booking growth in Q2 2025.

Our view is that AXON shares ran hard into the earnings report and combined with the items discussed above it is shaking out some of the momentum money. That’s fine with us, as we focus continue to focus on the ongoing mix shift in the business to higher margin software and services, which should lift the company’s overall margin profile and cash generation.

We will continue to closely track future contracted bookings, watching for any plateauing, but being mindful of the seasonal impacts, such as state and federal budget timing. In Q2 2026, Axon’s future contracted bookings rose more than 40% year over year (6% quarter over quarter) to $15.1 billion. That’s nice visibility, in our view, and with 20%-25% of that expected to ship in the next months it provides solid support for 2027 revenue. The balance of that $15.1 billion helps support the company’s $6 billion 2028 revenue target.

Comparing Axon’s future contracted bookings exiting Q2 2026 against those reported by competitor Motorola Solutions (MSI) last night, points to Axon taking market share. Motorola’s backlog grew a more tame 11% year over year in Q2 2026, well below the more than 40% reported by Axon.

Annual recurring revenue at Axon continues to rise, hitting $1.6 billion exiting Q2 2026 compared to $1.2 billion a year ago, with ~95% coming from subscription plans. As revenue grows, that subscription level should continue to provide us with a nice line of sight for revenue in coming quarters, bringing more support for that 2028 top-line target.

With Axon’s 2028 adjusted EBITDA margin target of 28%, which it reiterated in the Q2 2026 earnings presentation slide deck, we’ll want to see that margin rebound from the implied step down in H2 2026. After achieving adjusted EBITDA margins of 25.9% in H1 2026, management reiterated its 25.5% target for 2026. Given the telegraphed comments for added pressure in the current quarter, we will want to see those margins rebound in Q4 2026-Q1 2027 to gain greater comfort with that 2028 target.

For that reason, we are holding off making any changes to our $700 price target, even though others across Wall Street are lifting their targets. Our thinking is what we learn from management during its presentations at the 2026 Goldman Sachs Communacopia + Technology Conference, 2026 Wolfe Research TMT Conference, and 2026 Piper Sandler Growth Frontiers Conference from Sept. 8-15, will give us a status check on those ramping programs and margin prospects for Q4-2026 and Q1 2027. Based on those learnings, we’ll revisit our AXON price target.

We’ll also be listening for any sizable program wins that would lead to another step up in Axon’s total contracted bookings. That includes more details on the $1.5 billion Department of Homeland Security counter-unmanned-aircraft-systems program that Axon was named in alongside several other vendors.

In terms of our Two rating and the shares, when we examine AXON’s chart, we see a few gaps that were created in the last several days as well as growing support between the 50-day and 200-day moving averages between $509 and $513. Considering AXON’s 1.40 beta, and the momentum shakeout, any market misgivings over a U.S.-Iran deal, and late summer doldrums could pull the shares down further. If we were to reach those levels of support, the risk-to-reward tradeoff for us patient investors, based on what we know today, would be very favorable.

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At the time of publication, TheStreet Pro Portfolio was long AXON and COST.