Down 54%, This Tech Stock Looks Like a Buy With or Without AI

Investors don't know what to make of the AI boom.

Software stocks plunged earlier this year on concerns that AI-native applications from labs like Anthropic and OpenAI would disrupt entrenched software-as-a-service (SaaS) businesses with cheaper and more customizable programs.

The sector has recovered from its losses since then, though some quality stocks have gotten thrown out with the bathwater. One of them is Axon Enterprise (NASDAQ:AXON), the leading law enforcement technology company.

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All about Axon

Axon's shares tend to move with the broader software sector, but it's not entirely accurate to call it a software company as Axon handles both hardware and software. It makes devices like the Taser electrical weapon and body and dashboard cameras. It also offers a suite of database software to help law enforcement agencies manage things like records, evidence, and investigations.

That combination has given Axon a wide economic moat in serving law enforcement agencies, and it's reinforced that with a history of acquisitions and an innovative culture that has already rolled out a number of AI products. One of them is Draft One, a generative AI tool that writes first drafts of police reports based on camera footage.

Over its history, Axon has been a top performer in the stock market, delivering consistently strong revenue growth as it expands its market opportunity. Over the last decade, the stock is up more than 1,500%, and since the end of 2019, the company has delivered 25% revenue growth or better in every quarter except one.

Despite that strong track record, Axon stock is down 54% from its peak in 2025, and the stock has fallen 30% year-to-date, even as the broader software sector, as measured by the iShares Expanded Tech-Software Sector ETF, is flat for the year, following a strong rebound from the sell-off earlier this year.

What's ailing Axon?

There isn't one specific issue that explains Axon's sell-off. Among the factors weighing on the stock are its valuation, concerns about margin compression, management's decision to cut cash flow guidance as it invests in the business, and a recent convertible debt offering.

Axon has long been an expensive stock, and it deserves a premium given its growth rate and industry leadership. Currently, the stock trades at a price-to-sales ratio of 12, which is expensive but not excessively so. Around its peak last year, its P/S ratio was around 30, making it one of the most expensive software stocks on the market.

The concerns around the company's recent earnings results seem misplaced as Axon is in the middle of an AI investment cycle. In its key software and services segment, gross margin in the quarter fell 430 basis points to 71.3%, which the company attributed to a higher mix of professional services revenue and scaling new product offerings. It's unclear if the company expects gross margin to recover, but with 36% growth in the segment, lower margins aren't worth panicking over.

Finally, the stock sold off after the company offered a $1 billion convertible note last month, a reflection of its investment cycle, but investors dislike it when high-priced stocks dilute current shareholders.

Overall, the headwinds on the stock seem to reflect an attitude of short-termism among investors, as there is little sign of underlying weakness in the business. Those kinds of sell-offs tend to be good buying opportunities for long-term investors. We'll learn more when the company reports third-quarter earnings on Nov. 3, but Axon looks like a strong buy at the current price. It shouldn't take much for the stock to rebound from here.

Jeremy Bowman has positions in Axon Enterprise. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool has a disclosure policy.