In 2026, the semiconductor sector has witnessed remarkable growth, particularly as demand surges for AI infrastructure. Stocks in this space have dramatically increased, with the iShares Semiconductor ETF, which includes leading chip manufacturers, seeing its value double in the first half of the year. This surge is largely attributed to a major push in AI-related infrastructure and shortages in essential components such as memory chips.
Conversely, companies focused on AI software have not fared as well. The iShares Expanded Tech-Software Sector ETF, which tracks prominent software-as-a-service (SaaS) companies, has declined by 16%, significantly lagging behind the performance of the S&P 500 index. While some of these software stocks may justifiably be under pressure, others, such as Axon Enterprise, appear to be undervalued in the current market.
Axon, known for its law enforcement technology that includes TASER devices and body cameras, has a notable history on the stock market. Since its IPO in 2001 as a single-product entity, it has experienced a staggering increase, amounting to around 100,000%. Despite this impressive trajectory, the company faced a challenging year, with its stock price dropping 30% since its peak in August 2025 and breaking a nine-year streak of growth last year.
As investors consider diversifying their portfolios away from the booming semiconductor stocks, Axon presents a compelling opportunity, especially given its current discounted valuation.
Examining its recent performance, Axon has shown strong revenue growth, posting a 34% increase in the first quarter. The company boasts a robust net revenue retention rate of 125%, indicating that existing customers are spending significantly more on its software solutions. Furthermore, management recently raised its revenue growth guidance for the full year from 27%-30% to 30%-32%, signaling confidence in its business prospects.
Axon’s growth is not solely dependent on its established products. It is quickly innovating within the AI space, reporting a staggering 700% year-over-year revenue increase from its AI offerings. These include tools like Draft One, which automates the generation of police reports from body camera footage, and various software enabling real-time policy question responses during arrests. Other AI innovations include the Axon Assistant, which provides instant translation and research capabilities, and Axon Vision, designed to enhance video analysis.
In addition to its software developments, Axon is expanding into the drone market. Following its acquisition of Dendrone in 2024, the company has enhanced its drone capabilities, leading to a 300% revenue increase from counter-drone products in the latest quarter.
Recent news further drove Axon’s stock price higher, particularly a disclosure that former President Trump invested between $1 million and $5 million in the company earlier this year. This revelation coincided with ICE’s solicitation of a significant TASER contract, suggesting promising growth prospects in the federal sector, potentially buoyed by Trump’s ownership.
Though Axon’s stock trades at a relatively high price-to-earnings ratio nearing 100, as well as a price-to-sales ratio of 15, it showcases promising growth alongside healthy margins. Its technological advancements in AI and its commitment to improving law enforcement safety and efficiency position the company favorably for future expansion.
However, potential investors may want to exercise caution, as analysts from The Motley Fool’s Stock Advisor have identified ten other stocks that they believe will outperform. Prospective buyers should weigh Axon’s innovative potential against other high-performing equities in the current landscape.
As investors decide whether to incorporate Axon Enterprise into their portfolios, the juxtaposition of its compelling growth narrative against the backdrop of a cautiously optimistic stock market will be key in their deliberations.
