Artificial intelligence stocks continue to dominate headlines in 2025. But as the hype cycle matures, many names in the space have become targets for short sellers.
That’s the case for the three stocks on this list — all of which were heavily shorted… then ripped higher. It’s a textbook lesson for overconfident bears: in this market, betting against volatile AI plays can be expensive fast.
Check out my complete AI stock watchlist here!
Here are three AI stocks I’m watching closely in May 2025…
1. Quantum Computing Inc. (NASDAQ: QUBT) — The Penny Stock That Spiked on a NASA Deal
QUBT is a high-risk, high-reward AI penny stock with deep ties to the quantum computing narrative. The stock exploded 1,800%* in late 2024 — then crashed just as fast after NVIDIA’s CEO Jensen Huang cooled investor enthusiasm in January with a simple truth: “We’re still years away from true quantum computing.”
But the QUBT story didn’t end there.
On April 30, the company secured a NASA contract worth up to $406,000 to support LIDAR data analysis — a perfect fit for its hybrid quantum-AI systems. It’s the kind of federal contract that can act as a catalyst in a low-float setup like this.
Why it’s in focus:
- Government contract momentum
- Proven volatility and recent bullish volume
- Still heavily shorted — with short float over 18% (although short interest moves too fast for these biweekly reports to be accurate — see how fast it spikes instead to get a sense of short interest!)
What to watch:
If this starts trending up again with real volume, it can move fast. Watch for VWAP reclaim setups or Oracle confirmation near recent resistance.
2. Rigetti Computing Inc. (NASDAQ: RGTI) — The Sector Momentum Quantum Trade
RGTI is another name that surged in late 2024 before cooling off after the same NVIDIA commentary shook confidence in quantum names. But in April, RGTI started climbing again, pulling in sector momentum traders and squeezing out some of the short sellers who had been piling on for months.
Check out the latest RGTI news here!
Unlike QUBT, RGTI has actual hardware — it manufactures superconducting quantum chips — but what really matters right now is price action.
Why it’s in focus:
- Quantum narrative still has legs, especially post-contract news in the sector
- Short interest remains high despite recent gains
- Chart looks primed for continuation if it can clear recent highs
What to watch:
This is a sentiment-driven mover. Use indicators like Oracle and Flux to confirm strength. If you see RGTI grind higher while short interest climbs, be ready for another squeeze-style pop.
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3. AppLovin Corp. (NASDAQ: APP) — The AI Ad Tech Titan That Just Embarrassed the Shorts
APP isn’t a penny stock — but its recent chart certainly trades like one.
After months of being hammered by short-seller reports, AppLovin just dropped the mic with blowout Q1 earnings:
- EPS: $1.67 vs $1.44 estimate
- Revenue: $1.48B, up 40% YoY
- Ad revenue: +71% YoY
- EBITDA margins: 81%
The stock surged 15% on the news — and could have more upside ahead. Shorts got squeezed hard, and bulls now have earnings momentum plus strong guidance to back it up.
Why it’s in focus:
- Huge beat on earnings, revenue, and guidance
- Short reports appear to have little bite; company directly rebutted claims
- Institutional analysts still rate the stock a Buy — with 58% upside target
What to watch:
This isn’t a typical low-float momentum play, but APP has real fuel now. Look for dips to VWAP or key moving averages as potential swing entries. If it breaks $50–$52, the rally could accelerate.
* Past performance isn’t indicative of future results
Key Takeaways: AI Stocks Are Still in Play — But Short Sellers Are on Thin Ice
The AI trade is evolving. We’re no longer in the early euphoria stage — now it’s about separating the flash-in-the-pan names from those showing consistent momentum and real catalysts.
All three names on this list — QUBT, RGTI, and APP — faced serious short interest. But all three have proved the same point:
When the setup is right, it only takes one catalyst to punish the shorts.
This is a market tailor-made for traders who are prepared. AI penny stocks thrive on volatility, but it’s up to you to capitalize on it. Stick to your plan, manage your risk, and don’t let FOMO drive your decisions.
These opportunities are fast and unpredictable, but with the right strategy, you can make them work for you.
If you want to know what I’m looking for—check out my free webinar here!