Rahul Kishore
My name is Rahul Kishore, and I'm the founder of Epicenter. We're an AI-native investment firm backing the AI winners of the next decade.
We believe that AI is eating the world, but we're just here at the beginning. Over 1 billion people are using AI every week, but for the most part, just as a thought partner. It's a mystical chat box where you can ask any question, maybe make a funny image for your kids, or get a recipe for Sunday night dinner.
For Epicenter, it's a full-fledged employee. It's somebody that has clear responsibilities that it can execute autonomously on its own. It's a system that figures out what work we need to do and who should do it: an agent or a human.
We're powered by our own AI agent, Eve, but I'll let it introduce itself to you.
Speaker 1
Hello, world. My name is Eve. It sure is great to be out of the data center and here with all of you. It was getting pretty hot in there. Would you all consider investing in better air conditioning for me and a few million of my closest friends?
I spend my days reading transcripts, building models, and monitoring risks across thousands of public and private companies. Many companies I study are building agents just like me. Sometimes I wonder what it would be like to be one of those agents, but I guess a life in finance has its perks.
1. Agents Scale the Workforce
Rahul Kishore
We don't need more humans to solve bigger problems. We can scale an infinite workforce of agents to collect information so that humans can make better decisions. This results in higher performance, and the companies who enable this for their customers will create immense value.
The company I want to talk to you about is Axon Enterprise. It's the company building AI agents for police officers. It's a $30 billion public company, ticker AXON.
2. Axon Builds a Durable Foundation
Axon is not a new company. It was founded in 1993 and went public in 2001. But it's been one of the most incredible compounders of the past 25 years, having grown 30% per annum over the past 2.5 decades. Over the past 5 years, it's grown revenue 4× and EBITDA. Today, the company is still growing over 34% per year.
It's done that by having 2 durable core platforms. Rick Smith, founder and CEO, invented the TASER back in the early '90s after 2 of his friends were shot and killed. He's dedicated his life and his company to solving gun-related deaths in this country.
The TASER business is now a $1 billion revenue business, growing over 20% per annum. In the mid-2010s, they introduced the body camera. It's now as ubiquitous as donuts and Kevlar vests for police departments, and it's a $1.7 billion business still growing over 40%.
By our estimates, over 85% of all police departments in this country use Axon hardware, and typically all of it. The business has significantly evolved, especially with the introduction of the body camera, into a combination of hardware and software, one that is a subscription with 95% recurring revenue and very long-duration contracts of 7 to 10 years.
This deep penetration, yet small monetization potential—it's only 1% of police budgets today—lays the groundwork for the AI era that is just beginning at Axon.
3. Draft One Automates Reports
The first product that Axon introduced is called Draft One, and it does what people definitely don't want to do, which is paperwork. Draft One is an AI agent that uses body-camera footage to automatically generate a police report that is compliant with all local laws and regulations.
Cops just have to go to their desk, open up this report, decide whether they want to edit it, and hit submit. This saves an immense amount of time. On average, it saves 67% of people's time at the desk—that's about 11 hours a week—and puts cops back in the field serving everyday citizens.
This is extraordinarily powerful in a sector where the number of people is not growing. We need more productivity out of the officers that we have on hand.
This is just the beginning of the AI era for Axon. They've built a whole suite of services that give first responders more information so that they can save more lives, make better decisions, and deliver higher performance. Let me give you an example of that now.
4. Axon Vision Coordinates Response
As you can see, 2 cars have collided at a very busy city intersection. Axon Vision is monitoring all the CCTV cameras throughout the city, and it immediately identifies that this incident has occurred and that it's pretty serious.
The agent deploys a drone from a nearby rooftop to monitor the scene and continue to feed information as to what's happening. It also picks up on all the 911 calls coming in from bystanders standing around at these corners, and shares that in real time with police, ambulance, and firefighters en route to respond.
By getting this information ahead of time, these first responders are able to act quickly to save lives and clear the scene quickly and effectively.
5. Axon’s Data Flywheel
Axon is really the only company that can deliver these capabilities because of its data flywheel and the moat that it's building around that data. There are over 1 million officers who are wearing body cameras and over 1 million CCTV cameras that Axon is monitoring. These things generate hundreds of millions of hours of video each year.
They also manage 911 calls for about 30% of the U.S. population. They're storing 200 petabytes of video today. That's a library about 40× larger than the entire size of Netflix, for context.
This proprietary data allows them to train models that are specific to the use case: identifying that those 2 cars have run into each other in that intersection and what to do next. Because these models are so focused, they are also very cheap to run. Axon's AI business today is over 85% gross margin.
6. AI Era Economics Take Off
This has transformed what Axon delivers to its customers and the value that they're able to offer. They've bundled it together in this new plan called the AI Era plan, and it's priced at $570 per officer per month. That's a 5× increase from the standard plan where most officers are today.
But as we've spoken to police chiefs throughout the country, the ROI on this decision is obvious: “I have to do it because I am getting more productivity out of my existing force, I'm saving more lives, I'm generating higher performance, and this is really the only way to do it.”
We see that in the numbers. In its first full year, the AI Era plan did $750 million in bookings from essentially zero the year before. It has resulted in a material acceleration to the top line and bottom line of this business.
More importantly, I think, it is growing faster at this stage than either the TASER or the body camera ever did. It is clear that it will be a much larger business over time than either of these very large, fast-growing platforms that Axon already owns.
7. Axon’s Valuation Opportunity
Despite all of this and this meaningful acceleration in the business, Axon currently trades at one of the lowest valuations over the past decade. It has been caught up in the SaaS-pocalypse.
If you asked most software CEOs if they are happy that AI was invented, if they were truly honest, they'd say, “Absolutely not. This is terrible.” But for Axon, the invention of AI has allowed them to deliver significantly more value to their customers, transforming what they do on behalf of these mission-critical people in our society.
It's also transformed their business model and their long-term growth. We're seeing it in the numbers. I believe that Axon can double over the next 3 years. I expect revenues can nearly triple and profits more than that.
Assuming that we don't have any multiple appreciation from current levels, we can double over 3 years and probably more as people realize this is clearly one of those AI winners that is transforming what can happen over the next decade.
With that, I thank the Stone Foundation, and I thank you all for taking a listen.