Strong Q2 results have led to a further uproar in Axon Enterprise (AXON Quick QuoteAXON - Free Report)  and Palantir Technologies (PLTR Quick QuotePLTR - Free Report)  shares this week, remaining two of the hottest momentum stocks.

Axon’s stock has now spiked over +40% year to date, with Palantir shares surging more than +130%. More astonishing, AXON is up over +640% in the last three years with PLTR skyrocketing more than 1,700%.   

Considering their millionaire-maker-like gains, investors are surely wondering which of these hot stocks is the better investment at the moment.

Image Source: Zacks Investment Research

Axon Thrives on Increased Public Safety Spending

Thanks to increased global defense and public safety spending, Axon easily surpassed its Q2 expectations while posting stellar top and bottom line growth. The innovative manufacturer of weapons for the U.S. and international governments posted Q2 sales of $668.54 million, which soared nearly 33% year over year and comfortably topped estimates of $642.98 billion by 4%.

Furthermore, this marked the 14^th consecutive quarter of revenue growth above 25%, with CEO Rick Smith stating Axon is seeing broad demand across the company’s portfolio, including for its AI services, drones, cameras, and virtual reality solutions.

More impressive, Axon’s Q2 earnings came in at $2.12 per share, crushing expectations of $1.54 by 37% and soaring 76% from $1.20 in the prior period. Axon has now exceeded the Zacks EPS Consensus for a remarkable 33 consecutive quarters, with a very impressive average earnings surprise of 25.87% in its last four quarterly reports.

Image Source: Zacks Investment Research

Palantir’s First Billion-Dollar Quarter

Also thriving from increased defense spending, including the securement of a $10 billion contract with the U.S. Army, Palantir achieved its first-ever billion-dollar quarter, topping estimates of $938.33 million. This was a 48% spike from Q2 sales of $678.13 million a year ago, as the software provider saw strong demand for its artificial intelligence platform (AIP) outside of the intelligence communities.

Pinpointing increased commercial demand for AIP, Palantir CEO Alex Karp stated that companies are using Palantir’s tools not just to optimize operations, but to reshape entire business models. Palantir is also taking advantage of its expansive sales growth, with Q2 EPS of $0.16 rising from $0.09 a share in the comparative quarter and edging expectations of $0.14.

Notably, Palantir has now reached of exceeded the Zacks EPS Consensus for 11 consecutive quarters with an average earnings surprise of 13.17% over the last four quarters.

Image Source: Zacks Investment Research

Axon & Palantir Raise Their Full-Year Guidance

Adding fuel to investor sentiment is that Axon and Palantir have raised their full-year revenue guidance. Optimistically, Axon now forecasts fiscal 2025 revenue at $2.65-$2.73 billion, up from $2.6-$2.7 billion. It’s also noteworthy that Axon expects full-year adjusted EBITDA of $665-$685 million, raised from $650-$675 million.

Pivoting to Palantir, the company raised its FY25 revenue forecast to $4.142 billion-$4.15 billion, up from previous guidance of $3.89 billion-$3.9 billion. The bump is specifically attributed to full-year commercial revenue guidance increasing to over $1 billion, reflecting at least 85% growth. Additionally, Palantir raised its adjusted income from operations guidance to between $1.912 billion-1.92 billion and increased its adjusted free cash flow guidance to $1.8 billion-$2 billion.

Monitoring Axon & Palantir’s Valuation

While Axon is well ahead in terms of moving further past the probability line than Palantir, the price-to-sales ratio may still be a better indicator of judging the value these hot stocks offer to investors at their current levels, rather than price-to-earnings.

That said, Axon is also growing into its lofty valuation more swiftly regarding the P/S ratio after a rebranding to reflect its broader mission in public safety technology. To that point, Axon trades at 25X forward sales, which is far more reasonable than Palantir’s 104X.

Image Source: Zacks Investment Research

Conclusion & Final Thoughts

Although Palantir’s ability to benefit from the AI boom makes it the better momentum stock at the moment, Axon appears to be the overall better investment when considering its more justifiable valuation.

Axon’s profitability also makes it a more sound investment, and earnings estimate revisions (EPS) have remained higher, correlating with AXON sporting a Zacks Rank #1 (Strong Buy). On the other hand, Palantir stock lands a Zacks Rank #3 (Hold), and investors may certainly be looking for better entry points given PLTR doesn’t offer much fundamental value after such a monstrous year-to-date rally.