Palladyne AI (PDYN) stock surged 50% after securing a new contract from the U.S. Air Force Research Laboratory for project HANGTIME. Shares reached a year-to-date high of $9.52. However, caution is advised as the company has a net margin of -953% and a high P/S multiple of 56x. The stock’s momentum may be nearing exhaustion.

Investors are warned against chasing the rally in Palladyne AI, as the company is burning through cash and facing potential dilution with a $54 million shelf registration. The contract won from AFRL may not translate to high-margin recurring revenue, making the stock more speculative.

Options contracts expiring mid-April have a lower price set at $5.19, suggesting a potential 35% decline in PDYN over the next three months. Wall Street firms have a “Hold” rating on the stock with price targets as low as $7, indicating potential downside of 11% from current levels.

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