2026 has been a banner year for one segment of the AI sector.
Semiconductor stocks have soared, driven by the massive AI infrastructure build-out and shortages in products like memory chips. As a result, the iShares Semiconductor ETF, which tracks major chip stocks, has doubled through the first half of the year.
However, AI stocks with exposure to software have mostly underperformed, as the iShares Expanded Tech-Software Sector ETF, which holds the leading software-as-a-service (SaaS) stocks, is down 16%, significantly underperforming the S&P 500.
While some of those stocks deserve to be down, others have gotten thrown out with the bathwater, and one that looks oversold at this point is Axon Enterprise (AXON +5.95%), a law enforcement technology known for making TASER conductive electrical weapons, body and dashboard cameras, and a suite of software to help law enforcement agencies manage and process data like evidence, records, and investigations.
Historically, Axon has been a big winner on the stock market. The stock is up around 100,000% since its 2001 IPO when it was just a one-product company named TASER, but lately it's struggled. A nine-year streak of gains was snapped last year when the stock fell 6%, and it's been down most of this year as well, now off 30% from its peak in Aug. 2025.
For AI investors looking to rotate away from chip stocks for stocks that look oversold, Axon looks intriguing at the current price.
Let's take a closer look at Axon and what it's doing with AI.
Image source: Axon Enterprise.
An overlooked AI stock
While some software stocks have reported slowing growth due to either maturing markets or disruption from AI-native products like Anthropic's Claude Code, that isn't the case with Axon.
Revenue grew 34% in the first quarter on 125% net revenue retention, showing existing customers increased their software spend with the company by 25% over the last four quarters. It also raised its full-year revenue growth guidance from 27%-30% to 30%-32%, a clear sign of confidence from management.
While its core products like TASERs, cameras, and software continue to deliver solid growth, the company is also rapidly innovating with AI and other cutting-edge technologies.
Revenue from AI products rose more than 700% from a year ago. Those include Draft One, a generative-AI tool that writes first drafts of police reports based on body camera footage and audio, and software that can answer policy questions during arrests. Other AI products include Axon Assistant, a voice companion that can provide real-time translation and secure research capabilities, and Axon Vision, which scans video footage and tracks human forms to automatically prioritize or edit footage for review.
Axon has also moved into the drone market with the help of its 2024 acquisition of Dendrone, which has enhanced its drone-as-first-responder vertical and its counter-drone security business. Revenue from counter-drone products was up more than 300% in the first quarter.
Overall, the company balances a healthy core business with innovative growth opportunities in new technologies like AI.
NASDAQ: AXON
Key Data Points
Will Axon keep climbing?
Axon stock has soared this week, following a disclosure on Monday that President Trump bought between $1 million and $5 million worth of the stock in February. That news, which also included a report that Immigration and Customs Enforcement (ICE) solicited a $220 million TASER contract, portends more growth for the company from the federal segment, and Trump's ownership could give it favorable treatment as well.
Axon isn't cheap, trading at a price-to-earnings ratio of close to 100 based on adjusted earnings, and a price-to-sales ratio of 15. However, the company combines strong growth, solid margins, and significant upside potential with AI and its mission of making the bullet obsolete.
The catalyst from Trump's purchase of the stock also shows there's plenty of room for growth if investor sentiment swings back in its favor.
If you're looking to diversify your AI holdings away from chip stocks and other traditional tech stocks, Axon looks like a great choice.
