With a market capitalization of $265 million, Palladyne AI Corp. (NASDAQ: PDYN) remains a small software firm. However, its massive growth in the last year has provided it momentum far outpacing some of the trendiest larger companies—NVIDIA Corp.'s (NASDAQ: NVDA) 103% return in the year leading to January 31, 2025, is just a fraction of Palladyne's almost 1,600% increase over the same period.

Palladyne's rapid growth has accompanied significant hype and investor enthusiasm. The company occupies a unique space bridging the red-hot AI and drone industries—its software enhances the functionality and adaptability of other firms' robots, among other things. Given Palladyne's success and the excitement surrounding both industries more broadly, investors may wonder what is in store for the company. Below, we'll take a closer look at some factors that have driven the enthusiasm surrounding Palladyne and consider whether it can live up to the hype.

Demonstrably Effective AI Drone Software

Palladyne's software enhances a robotic system's capacity to perceive its environment and allows for improved detection and tracking of objects of interest relative to prior systems. It also allows drones to communicate with one another more effectively, helping to coordinate larger fleets of independent drones and improve efficiency and data-gathering capabilities.

In December 2024, the company proved the effectiveness of these tools with a successful first flight of a third-party small drone using Palladyne's Pilot AI platform to identify targets of interest and track and follow them autonomously.

Major Government Projects and Contracts

On the subject of third-party drones, Palladyne's collaborator Red Cat Holdings Inc. (NASDAQ: RCAT), a maker of military, government, and commercial drones, announced in November that it had been selected as the winner of the U.S. Army’s Short Range Reconnaissance (SRR) Program of Record. The next day, Red Cat and Palladyne announced an expansion to their pre-existing partnership. The SRR announcement will undoubtedly be a boon for sales for both Red Cat and Palladyne and help considerably raise the profile of both companies.

In January, Palladyne announced an important military contract of its own. The company received an Air Force Research Laboratory contract to migrate its Pilot AI platform to new AI chipsets with the goal of enhancing performance on an expanded list of unmanned aerial vehicle systems. The project is slated to last nearly two and a half years and will increase Pilot AI's utility across a wider variety of small drones.

Hype Sets a High Bar

The enthusiasm surrounding Palladyne AI—leading to its 1,600% surge in the last year—is tremendous, particularly for a company in such early stages of its commercialization process that it generated under $1 million in revenue in the latest quarter. Palladyne expects an upward trajectory on top-line performance, with more than $6 million in revenue expected for 2025 and more than $12 million anticipated for 2026. However, this is still a pittance compared to much larger firms in the AI, autonomous vehicle, and automation software spaces.

Palladyne's cash reserves stood at more than $21 million at the end of the third quarter of 2024, which may not be enough to allay cautious investors' concerns about its ability to continue to finance operations as it works toward full commercialization of its Pilot platform. This is another area where the company faces significant headwinds, particularly in comparison with better-established competitors.

It can also be difficult to get a good sense of where analysts anticipate Palladyne going in the near term. The firm currently only has one rating by analysts at Alliance Global Partners. This team initiated a Buy rating for the company on January 27, 2025, based on the promise of Palladyne's partnership with Red Cat, described above. Alliance Global set a price target of $15.00 per share, more than three-quarters higher than current price levels as of January 31, 2025. However, a shortage of comparison points may leave investors feeling uncertain about broader sentiment among analysts.

Among investors, though, a growing contingent is viewing Palladyne AI as overhyped. As of January 15, 2025, short interest in the stock exceeded 4.1 million shares, a whopping 250% increase over December 31, 2024.

Where Should You Invest $1,000 Right Now?

Before you make your next trade, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.

Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.

They believe these five stocks are the five best companies for investors to buy now...

See The Five Stocks Here