XOS stock soars on Air Force contract: should you chase the rally?

Xos Inc XOS stock is ripping higher on Tuesday morning after the EV and battery infrastructure specialist said it has secured its first contract with the US Air Force.

As investors cheered the announcement that marks XOS’s debut in the defense sector, its relative strength index (RSI) climbed into the early 70s, indicating heightened risk for a near-term pullback.

Despite the explosive rally on August 18, XOS shares remain down significantly from their year-to-date high in early June.   

Significance of Air Force contract for XOS stock

The announced military deal represents a monumental pivot for Los Angeles-headquartered XOS.

Under the prototype “Other Transaction Agreement (OTA)” contract, the company will build and deliver a ruggedized, deployable version of its proprietary XOS Hub mobile energy storage system.

This agreement validates that XOS’s grid-independent charging technology has high-value dual-use utility beyond commercial delivery fleets, municipal yards, and shipping ports.

With military power solutions projected to become a multi-billion-dollar global industry, proving its mobile charging hub can support remote defense operations gives XOS stock a brand new high-margin growth vertical.

Why XOS shares aren’t worth buying into strength

Despite the excitement surrounding government backing, investors should exercise caution before chasing today’s vertical move.

Why? Because just days ago, Xos reported Q2 earnings that highlighted severe top-line pressure.

The company generated only $4.7 million in Q2 revenue – delivering only 30 units – compared to $18.4 million in the same period last year. Plus, Xos Inc continues to burn cash, posting a second-quarter loss operating loss of $7.9 million.

A single prototype development contract does not instantly resolve underlying liquidity concerns, nor does it guarantee scaled defense procurement contracts in the immediate future.

Buying into an algorithmic “short-squeeze” could leave retail investors holding overvalued XOS shares once initial euphoria fades.

Xos Inc remains a high-risk investment in 2026

Investors must also remember that Xos Inc remains a “penny stock” subject to extreme volatility and dilution risks.

While today’s trading volume topped tens of millions of shares, micro-cap names often leverage sudden price spikes to execute dilutive capital raises or ATM (at-the-market) share offerings to fund operations.

Additionally, given XOS’s elevated net losses and history of reverse stock splits to maintain exchange compliance, the risk of a sharp pullback is exceptionally high once momentum traders exit their positions.

Unless Xos Inc can translate this defense entry into consistent, profitable commercial revenues, chasing this morning’s speculative pop presents a rather high-risk gamble that could easily burn latecomers.

What’s also worth mentioning is that XOS stock currently receives coverage from just three Wall Street firms.

And while the consensus rating sits at Moderate Buy, the mean price target is set at $4.00 currently, reinforcing that the meteoric run on August 18 has indeed gone a bit too far.