Axon: Long-Term Outlook Is Strong Despite Federal Budget Worries

Core Viewpoint - Axon Enterprise's stock experienced significant volatility due to analyst downgrades and concerns over federal budget cuts, but a strong Q4 earnings report has restored investor confidence, leading to a notable share price increase [1][2]. Group 1: Financial Performance - Axon reported adjusted earnings per share of $2.08, exceeding expectations by 48% and marking an 81% increase year-over-year [7]. - Revenue grew by 33%, and the company secured its largest enterprise deal to date, with enterprise bookings tripling compared to the previous year [7]. - Future contracted bookings reached $10.1 billion, nearly five times the revenue generated in 2024, indicating strong growth potential [7]. Group 2: Federal Budget Concerns - Approximately 84% of Axon's revenue is derived from the U.S., with an estimated one-third coming from federal government contracts [3]. - The Pentagon plans to reallocate 8% of its total budget over the next five years, potentially affecting $300 billion in spending [4]. - Despite concerns, Axon management believes that federal budget cuts could lead to more opportunities for securing federal contracts, suggesting a positive outlook for the company [2][6]. Group 3: Market Valuation - Axon is currently trading at a forward-adjusted P/E ratio of 100, which is high but reflects the company's growth potential, as it has only penetrated less than 2% of its Total Addressable Market (TAM) estimated at $129 billion [8][6]. - Analysts from JPMorgan and TD Cowen project an implied upside of nearly 26% for Axon based on recent price targets [9].