Axon Enterprise: A Fortress of Recurring Revenue in a Tariff-Tossed World

The global economy is grappling with rising tariffs, supply chain volatility, and margin pressures—yet Axon Enterprise is proving itself an exception. By leaning into its software-driven business model and strategic diversification, the public safety technology leader has built a moat of recurring revenue that insulates it from macro headwinds. For investors seeking resilience amid uncertainty, Axon’s 34% annual recurring revenue (ARR) growth, ecosystem dominance, and disciplined execution make it a compelling buy at current valuations.

The Shield: Software as a Hedge Against Tariffs

Axon’s software and services segment—now 43.5% of total revenue—has become its financial backbone. Unlike hardware, which faces tariff pressures and cyclical demand, software generates high margins and sticky recurring revenue. In Q1 2025, this segment surged 39% year-over-year, driven by premium offerings like Draft One (an AI-powered incident reporting tool) and the newly launched Axon Assistant, an AI voice companion embedded in its Body 4 body cameras.

These software services now account for $1.1 billion in ARR (up 34% YoY), a figure that grows steadily as Axon upsells existing customers and expands its $129 billion total addressable market (TAM). Crucially, software gross margins hit 77.2% in Q4 2024, far outpacing hardware’s margins and insulating profits from tariff-driven cost pressures.

While tariffs are expected to trim Axon’s 2025 adjusted EBITDA margin by 50 basis points, the company’s supply chain diversification—sourcing components from Vietnam, Thailand, and Mexico, among others—has mitigated worst-case scenarios. Inventory buffers and a “digital twin” technology that models supply chain risks further reinforce operational resilience. As CEO Joshua Isner noted, this strategy ensures Axon can “preserve flexibility as tariffs evolve.”

The Scalpel: Ecosystem Expansion and AI-Driven Growth

Axon’s true edge lies in its ecosystem play. The Axon Assistant, launched in early 2025, exemplifies how the company is transforming from a hardware vendor into a platform provider. By embedding AI tools like real-time translation, policy guidance, and traffic updates directly into frontline devices, Axon is locking customers into its software ecosystem.

Early adoption signals are strong:
- The AI Era Plan—a subscription bundle that includes Axon Assistant—has already spurred a 123% net revenue retention rate, as agencies pay premiums to access cutting-edge tools.
- Future contracted bookings hit $10.1 billion, with 20–25% of that recognized in 2025, reflecting long-term commitments to Axon’s software stack.

This ecosystem momentum isn’t accidental. Axon’s partnerships with third-party devices (e.g., Ring, Citizen) and its Works With Axon program are creating a defensible moat. Law enforcement agencies increasingly see Axon’s integrated platform as mission-critical, reducing churn and fostering incremental revenue streams.

The Bottom Line: Why Buy Now?

Despite near-term margin pressures from tariffs, Axon’s valuation remains compelling. At a forward P/S ratio of 5.8x (well below peers like Palantir or CrowdStrike), the stock reflects skepticism about its ability to navigate tariffs rather than its long-term potential.

The catalysts for re-rating are clear:
1. ARR Growth: With software at less than 2% of its $129 billion TAM, Axon has room to expand globally and penetrate new verticals like enterprise safety.
2. Margin Stability: The software mix’s high margins will increasingly offset hardware headwinds, even as tariffs linger.
3. Ecosystem Flywheel: Axon Assistant’s AI capabilities and ecosystem integrations position the company to capture $300 million+ in incremental ARR over the next three years.

Final Call: Act Before the Crowd Catches On

Investors often overlook the power of recurring revenue in volatile markets. Axon’s ARR fortress, paired with its disciplined supply chain and ecosystem expansion, makes it a rare “recession-resistant growth stock.” At current valuations, the upside potential—driven by untapped TAM and software adoption—far outweighs near-term risks.

Buy Axon Enterprise now. Its software-driven moat and strategic execution position it to thrive in any macro environment—and investors who act now will be rewarded as the market recognizes its true value.

This article is for informational purposes only and should not be considered financial advice. Always conduct your own research or consult a financial advisor before making investment decisions.