I believe the current market structure of Palladyne AI ($PDYN) makes it a prime candidate to suffer a short squeeze in the following week(s).

I TLDRed in the title, but here's a breakdown of the setup:

Short Interest

The last FINRA report, with JUL/15 as its settlement date, discloses that there were 9,222,861 shares currently sold short. With an estimated float of 29.76M (source: Yahoo Finance), $PDYN has a Short Interest ≈ 30.98%.

Borrow Utilization

According to Orbisa's Securities Lending data, there's not much more room for shorts to continue piling in; we can also confirm this high-utilization crosschecking it with IBKR's borrow data, where we find a current scarcity of available shares (see images below).

Orbisa's Securities Lending data

IBKR Borrow data (from ChartExchange)

With such high utilization and, consequently, lack of available shares, short sellers can't easily repress buying flows from pushing the price up, neither can they average up their cost basis.

Days to Cover

The last two weeks were unusually dry on trading volume, with an Average Volume of around 750K shares traded per day. If we consider the last 30 days (i.e., the entire month of July), we get an Average Volume of 1.2M.

Taking into account the 9,222,861 shares sold short reported by FINRA, the current DTC is either 7 or 12, depending on which timeframe we use for the Average Volume, both extreme values.

06/AUG Earnings Report

On 8th of July, Palladyne AI announced some preliminary numbers for their second quarter earnings report (source):

• Revenue of approximately $5.8 million, an increase of approximately 480% compared to $1.0 million in the second quarter of 2025;
• Sequential revenue growth of approximately 66% compared to $3.5 million in the first quarter of 2026;
• Backlog of approximately $24.0 million as of June 30, 2026, up from $17.3 million as of March 31, 2026;
• Gross new contracts added during the quarter of approximately $12.5 million;
• Cash, cash equivalents and marketable securities of approximately $44.0 million as of June 30, 2026, roughly flat compared to March 31, 2026.

The full and official earnings report will be released on August 6th.

In conjunction with it, the company will also host a conference call to discuss its financial and operational results. The call may also include commentary on the company's guidance, business outlook, and future expectations, which could positively impact the market's overall perception.

In short: any yet unaccounted positive factor (e.g., gross margins, backlog conversions, optimistic commentaries about the near future, etc) could trigger bigger buying flows from institutions, algorithms and retail, serving as a catalyst for the short squeeze.

Conclusion

To summarize, we have a market structure in which not only short selling is mechanically constrained by a scarcity of borrowable shares, but crowded short positioning has developed in a low-liquidity market: it's neither easy for shorts to get in, nor to get out.

Analyzing Orbisa's historical data, I believe most short exposure is concentrated in the $5.50-$7.00 region, with $5.50 acting as the current resistance. If buying flows come in and price starts to climb, a short covering rally could become inevitable.

It's important to note that, although the August 6 earnings release could be a catalyst for the short squeeze, in practice anything else could ignite it: upcoming news, technical breakouts, macro trends, social media or any other event that generates enough attention towards the company.

Last but not least — in order to maybe challenge the short sellers' thesis, or at least question the level of conviction implied by their positioning —, I have listed below all the relevant news Palladyne AI has announced since its last earnings report (2026 Q1 earnings, reported on May 5th), showing that the company has continued to expand, signing relevant contracts and forming strategic partnerships:

1. (JUN/08) Palladyne AI and IAI Form Partnership to Manufacture and Sell Combat-Proven Loitering Munition Systems to the U.S. Department of War
2. (JUN/17) Palladyne AI Awarded U.S. Army Contracts for SwarmOS and Gremlin-X Mini-Bomber UAV
3. (JUN/22) Palladyne AI Appoints Former Golden Dome Operational Commander and U.S. Army Space and Missile Defense Commander Lt. Gen. Sean A. Gainey to Defense Advisory Board
4. (JUN/29) Palladyne AI’s GuideTech Wins New $2.3 Million Contract for BRAIN
5. (JUL/07) Palladyne AI Executes $4.2 Million U.S. Air Force Contract to Advance Swarming Capabilities
6. (JUL/22) Palladyne AI Announces U.S. Air Force Exercise of Additional $2.9 Million STRATFI Contract Option