UiPath's AI-Driven Turnaround: A Contrarian Opportunity in Automation?

UiPath Inc. (PATH) has long been a polarizing name in the automation sector, with its stock oscillating between optimism and skepticism. Yet, as of late 2025, a striking divergence has emerged between short sellers' bearish bets and the company's accelerating fundamentals. With short interest reaching 13.22% of its public float by December 2025, UiPath appears to be a textbook case of contrarian investing: a stock heavily shorted despite achieving record Annual Recurring Revenue (ARR) of $1.78 billion, its first GAAP profitable quarter, and a surge in AI-driven partnerships. This disconnect raises a critical question: Is UiPath's high short interest a warning sign-or a harbinger of a short squeeze?

Short Interest Trends: A Bearish Bet on a Bullish Story

Short interest in UiPath has fluctuated dramatically in late 2025. By November 14, 2025, 10.31% of its float was sold short, but this figure spiked to 13.22% by December 13, reflecting a 28% increase in bearish sentiment. The short interest ratio (SIR)-the number of days to cover shorted shares-also rose to 3.64, up from 2.2 in early November. Such a jump suggests short sellers are increasingly confident in UiPath's near-term decline. However, this optimism may be misplaced.

Historically, high short interest has often preceded sharp price reversals when fundamentals outperform expectations. For UiPath, the recent surge in shorting coincides with a stock that has already surged 36% in the week following its Q3 2025 earnings report. If the stock continues to outperform, short sellers may face margin calls, triggering a self-reinforcing rally.

Financial Fundamentals: A Turnaround in Motion

UiPath's Q3 2025 results underscore a transformative phase. The company not only achieved its first GAAP operating income of $13 million but also reported revenue of $411 million-a 16% year-over-year increase. Its ARR of $1.78 billion, up 11% YoY, demonstrates sustained demand for its robotic process automation (RPA) platform. These metrics are particularly significant given the skepticism surrounding UiPath's path to profitability.

The company's margin expansion further strengthens its case. GAAP gross margin hit 83%, while non-GAAP gross margin reached 85%, reflecting disciplined cost management. Coupled with a non-GAAP operating income of $88 million, UiPath's financials suggest a maturing business model. Such progress has not gone unnoticed: the stock's 3.92% post-earnings surge and 36% weekly gain indicate growing conviction among longs.

AI Partnerships: Building a Future-Proof Platform

UiPath's strategic AI partnerships in 2025 are redefining its value proposition. At FUSION 2025, the company unveiled nine agentic automation solutions targeting complex processes in financial services, healthcare, and manufacturing. These solutions, co-developed with industry leaders, leverage UiPath's Maestro platform to orchestrate prebuilt agents and robots, enabling enterprises to automate tasks that previously required human judgment.

Collaborations with Snowflake, Google Cloud, and NVIDIA have further solidified UiPath's position in the AI ecosystem. By integrating Snowflake Cortex AI, UiPath allows businesses to act on data insights autonomously. Meanwhile, partnerships with Google Cloud and NVIDIA extend its capabilities into regulated environments, ensuring secure AI deployment in sectors like healthcare and finance. The Veeva AI Partner Program adds another layer of credibility, enabling agentic testing in life sciences-a market with stringent compliance requirements.

These partnerships are not mere PR stunts; they address real-world challenges in enterprise automation. By positioning itself as the "operating system for agentic AI," UiPath is capturing a growing market where competitors like Automation Anywhere and Blue Prism lack comparable integration.

Short Squeeze Potential: A Contrarian Thesis

The combination of high short interest and robust fundamentals creates a compelling case for a short squeeze. Short sellers typically profit when a stock declines, but their bets become risky if the price rises. With UiPath's short interest at 13.22% of the float-a level that would require covering 48.48 million shares-a sustained rally could force short sellers to buy back shares at higher prices, exacerbating losses.

This dynamic is amplified by UiPath's recent momentum. Its Q3 guidance for Q4 2025 revenue of $462–467 million and ARR of $1.844–1.849 billion suggests continued growth. If the company meets or exceeds these targets, the stock could attract further buying from both institutional and retail investors, creating upward pressure.

Conclusion: A Divergence Worth Monitoring

UiPath's journey from a high-growth RPA provider to a GAAP-profitable AI automation leader is far from complete. Yet, the current short interest-despite the company's financial and strategic progress-presents a unique opportunity. For investors willing to bet against the bearish consensus, UiPath offers a compelling mix of near-term catalysts (short squeeze potential) and long-term tailwinds (AI-driven automation demand).

As the automation market evolves, UiPath's ability to bridge the gap between AI insights and actionable workflows could redefine its industry. Whether short sellers eventually prove right or wrong, the coming months will test the resilience of both the stock and its skeptics.