Rolls-Royce shares have climbed 20% higher in the past month, bringing the five-year return to around 1,120% for the FTSE 100 stock.
A reassuring trading update at the end of April and fresh hopes surrounding the Iran conflict appear to have driven that recent momentum in the share price.
While the stock remains a long-term bullish proposition, it is also trading close to a new all-time high and is far from cheap by conventional valuation measures.
Instead, Axon Enterprise (NASDAQ: AXON), an S&P 500 stock currently down 49%, is seen as the preferred pick over a five-year time frame.
Axon started out selling Tasers before expanding into bodycams and dashcams, and subsequently moving into software built around digital evidence storage for law enforcement.
Today the company is branching into drones, virtual-reality Taser training, and artificial intelligence, with Q1 marking its ninth consecutive quarter of 30%-plus revenue growth.
Revenue in Q1 jumped 34% to $807m, and management raised full-year guidance to a range of 30% to 32%, up from a previous range of 27% to 30%.
The company also expects an adjusted EBITDA margin of 25.5%, while AI products revenue alone surged more than 700% during the first quarter.
Despite those strong numbers, the stock has fallen 49% since August, partly on valuation concerns and partly because Axon, which now derives around 44% of total revenue from software, has sold off alongside other software stocks amid AI-related fears.
Axon President Josh Isner addressed those concerns directly, stating: “It’s so ironic we’re caught in the middle of this SaaSpocalypse fear. It’s like we are the company going on offence in AI. Our first year of selling AI products to police, we sold almost $1bn of it, for a company whose revenue was around $3bn last year.”
The AI Era Plan, launched in late 2024, has become Axon’s fastest-selling product ever, bundling AI tools including Draft One, which automatically transcribes bodycam footage into draft police reports.
The appeal of Draft One is tangible, given that US police officers currently spend around 40% of their time writing reports, a figure the product reduces to roughly 20%.
Axon’s counter-drone Business, Dedrone, also saw Q1 revenue rocket over 300% as data centres, oil refineries, nuclear facilities, and stadiums including upcoming World Cup venues increased their security spending.
Conflicts in Ukraine and Iran have demonstrated that cheap drones can be rapidly weaponised for reconnaissance or direct attacks, expanding the commercial case for counter-drone technology significantly.
The company is also seeing rising International demand for Tasers and bodycams from Latin America, Europe, the Middle East, and Africa, with adoption described as still being at an early stage.
The most significant risk attached to the stock remains its valuation, with a high forward price-to-earnings ratio of 55 leaving it vulnerable if growth slows beyond current expectations.
However, the scale and variety of the long-term commercial opportunities across AI, drones, and international markets make the stock worth consideration despite that elevated valuation multiple.