Evolv Technologies (NASDAQ:EVLV) is a startup that supplies security scanning technology to schools, stadiums and other venues. Evolv’s AI-enhanced scanners are meant to replace traditional metal detectors by leveraging artificial intelligence imaging to specifically identify concealed weapons and other potentially dangerous items. In the last 12 months, shares of EVLV have nearly doubled. Why is Evolv Technologies stock up so much, and can EVLV keep moving higher?
What’s Driving the Rise of Evolv Technologies?
A glance at EVLV’s chart shows that the stock began rising in earnest after its Q1 earnings report. In that report, Evolv detailed revenue of $32.0 million, up 44 percent from the year-ago quarter. ARR also rose 34 percent to $106.0 million. At the same time as Evolv was building its revenue base, it was also able to pare its net losses back to just $1.7 million against a loss of $11.3 million in the prior year’s Q1.
These growth trends kept going in Q2, with quarterly revenues rising 29 percent to $32.5 million and ARR rising 27 percent to $110.5 million. Management also upgraded its revenue growth guidance for the full year of 2025 from the range of 20-25 percent to 27-30 percent. Net loss for the quarter, however, expanded markedly to a loss of $40.5 million.
Along the way, Evolv has been able to secure long-term contracts for its security scanners with a number of large customers. Recently, for example, Evolv renewed and expanded its existing partnership with Gillette Stadium, the venue that hosts the New England Patriots.
Evolv has also been putting greater emphasis on its subscription-based model, driving ARR growth while creating steady and predictable revenue for the business. In Q2, subscription revenue was up by about 29 percent from the year-ago quarter and accounted for the largest share of overall revenues.
This subscription model could set the business up for long-term success, especially considering the fact that it largely operates on multi-year contracts.
Finally, it’s difficult to ignore the role of overall positive sentiment around AI in Evolv’s rise. The business highlights the potential of its AI security system to limit delays for guests entering and leaving venues and other secured areas. In today’s deeply bullish market for artificial intelligence stocks, Evolv stands out as a potentially disruptive business that could bring new technological value to a security scanning market still largely dominated by detectors that simply indicate the presence of metal objects.
What About Evolv’s Valuation?
The market’s enthusiasm for AI stocks is on full display in the set of price forecasts offered for EVLV by analysts. Even after almost doubling in recent months, the current price of $8.15 is still about 16.5 percent below the consensus target price of $9.50. It should be noted, however, that this consensus comes from a relatively small group of analyst forecasts and so may not fully reflect more bearish views.
At its current price, EVLV is trading at the lofty multiples of 10.8 times sales and 15.1 times book value. Though certainly not unheard of for an AI startup that’s delivering rapid revenue growth, such high multiples could indicate that the stock may be overvalued in spite of its future growth prospects.
Evolv’s Risky History
Although Evolv’s shares are currently soaring, it’s important to keep in mind that the business could still carry some heavy risks. In addition to the fact that it’s still losing money, Evolv has had its share of regulatory issues. In November, for instance, the FTC took action against Evolv on the grounds that the business had allegedly misrepresented the capabilities of its AI technology. The resolution allowed several schools the option of breaking their contracts with Evolv.
More recently, Evolv has agreed to pay a settlement to its existing shareholders over improper financial reporting. This improper reporting was the result of incorrect information supplied to Evolv’s accounting team. The details of the settlement have yet to be finalized, making it difficult to say how expensive it will prove to be for Evolv.
Perhaps most concerning of all, however, is an ongoing lawsuit against the business alleging that its scanners failed to detect a concealed knife. This failure calls into question the basic efficacy of Evolv’s systems, a fact that could hinder the business’s efforts to build its customer base.
Cumulatively, this history of regulatory difficulties could shake some investors’ confidence in Evolv Technologies going forward. If similar problems arise in the future, they could also cause a sharp selloff. The allegation that Evolv misrepresented its technological capabilities to customers is especially concerning, as there could be substantial risks for the business and the stock if Evolv’s systems regularly fail to detect security threats.
Is Evolv a Buy Now?
Despite ongoing losses, there’s a good bit to like about Evolv’s basic business model. The security scanning market is a valuable target for disruption with the use of AI, and Evolv has managed to secure a number of contracts with large customers on a long-term subscription basis. By establishing itself as an early leader in AI-enhanced security scanning, Evolv has staked out what could be a very valuable position.
There are, however, also some fairly large risks associated with EVLV. To begin with, the stock does look fairly expensive at the moment, meaning that Evolv will have to keep its growth rate quite high in order to justify its current share prices and drive further returns. The business’s recent history of regulatory and accounting problems, likewise, could make it a worrying asset for investors to own.
Given the legal and regulatory problems that Evolv has had over the last year, now may not be the time to pay such a high price for the stock. Though there could be a great deal of potential in Evolv’s technology and business model, management is still dealing with the fallout of failures to detect weapons, exaggerated claims of the technology’s effectiveness and improper accounting. These factors, in conjunction with very high share prices, could make EVLV an unattractive stock to buy at the moment.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.