Axon (AXON) Stock Price Sinks As Q3 Results Stoke Skydio Doubts

Axon Enterprise just took a hit. The stock closed at US$382.56 before the Q3 2026 report and then sank about 18% to US$313 as investors reacted in a hurry. That is a sharp move for a company that just posted roughly US$909 million in quarterly revenue and adjusted EBITDA of US$236 million.

The short term story is fear. The longer term question is whether this level of selloff makes sense when considering Axon’s growing software and services base and the Skydio drone investment that is intended to shape the next several years.

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Q3 2026 Earnings Summary

• Revenue (Q3 2026 vs. Q3 2025): US$908.6m vs. US$710.6m (higher year on year)
• Net Income (Excl. Extra Items, Q3 2026 vs. Q3 2025): US$57.0m vs. a loss of US$2.2m (returned to profit)
• Basic EPS (Q3 2026 vs. Q3 2025): US$0.70 vs. a loss of US$0.03 per share (moved back into positive territory)
• Adjusted EBITDA Margin (Q3 2026): 25.9% on adjusted EBITDA of US$236m and revenue of about US$909m (solid profitability on the current scale)

Ask Charlie what Axon really gains from the Skydio deal.

Axon bullish thesis meets ARR and margin test

The optimistic story hangs on Axon converting interest in AI, drones, and counter drone tools into sticky software contracts.

"The main thing that has to go right is that Axon Enterprise continues turning global demand for public safety, AI driven workflows, and counter-drone solutions into long term, high margin recurring contracts despite cost pressures and political scrutiny."

Q3 shows pieces of that playing out. Software & Services reached US$437m and is approaching half of group sales. ARR hit US$1.8b with 40% growth and 126% net revenue retention. Adjusted EBITDA margin of 25.9% also held up despite memory cost headwinds.

Axon bear case on costs, dilution and timing

The cautious view focuses on hardware drag, funding risk, and how Axon is financing its bets.

"Newer offerings such as counter drone hardware and related services, along with rising memory costs for cameras, are currently a drag on connected devices margins and are expected to weigh on adjusted EBITDA in the near term. If these pressures persist or intensify, they could limit Axon Enterprise’s ability to translate bookings growth into higher gross margin and earnings."

Q3 margins stayed solid, yet management still flags a 50 bps 2026 headwind and even larger pressure in Q4. Revenue guidance was cut by about US$130m after Dedrone delays, and the US$1.15b zero coupon convert plus US$1.2b Skydio deal highlight real dilution and capital allocation questions.

Not everyone reads the same price the same way. → See the higher figure this Narrative lands on, and how it gets there.

Hunt For Mispriced Compounding Stories

Axon Enterprise just showed how a single quarter can jolt expectations without changing the long haul debate overnight. The real opportunity could sit in companies where the pricing has not yet caught up with the business.

• Company 1 - 42% below our estimate - targets merchants needing one integrated setup for local cards, wallets and instant payouts across emerging economies.
• Company 2 - 40% below our estimate - shifts legacy hardware buyers into recurring contracts around AI centric networking and data center upgrades.
• Company 3 - 31% below our estimate - expands factory capacity to capture more AI data center optics work as customers retool server rooms.

Those are three of them. See all 39 potentially undervalued companies →

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