Hedge funds are actively targeting two of the Australian sharemarket’s most prominent stocks, 4DMedical and DroneShield, just as the retail investors who fuelled their earlier share price surges begin to pull back. Imaging software company 4DMedical specialises in advanced diagnostic technology for lung health, aiming to revolutionise medical imaging. Defence technology firm DroneShield develops and manufactures counter-drone systems, providing security solutions against unmanned aerial threats. Both companies have experienced significant boom-and-bust trajectories on the ASX, with early investors in 4DMedical potentially seeing a 2000 per cent gain before a 40 per cent drop, while DroneShield delivered a 500 per cent return before plunging nearly 70 per cent from its peak.
Plato Investment Management is among the hedge funds taking a keen interest, having opened a short position on 4DMedical after its internal system flagged 16 red flags, indicating potential market underperformance. Dave Allen from Plato remarked that 4DMedical’s market capitalisation of approximately $2.5 billion against revenue of less than $6 million made even SpaceX “look cheap.” Plato has also been building a short position against DroneShield, which triggered 11 red flags and whose 2026 calendar guidance fell 20 per cent below expectations. Short interest in both companies has surged dramatically over the past year, making them the most shorted stocks on the Australian sharemarket.
This shift in institutional sentiment coincides with a noticeable retreat from retail investors. Fresh data from CommSec reveals that 4DMedical was the most traded stock last week, with 57 per cent of volume being sell trades, while DroneShield, the third-most traded, saw 56 per cent sell trades. Similarly, wholesale trading firm AUSIEX reported majority sell trades for both companies. Bell Asset Management’s Tim Johnston deemed them too expensive, and while Ten Cap’s Jun Bei Liu is not targeting them due to rebound risk, VP Capital’s John So noted that DroneShield has already sold off meaningfully, and a single surprise contract could trigger a recovery.
