Xerox Holdings Corp. (XRX) just gave short sellers a nasty surprise. The printer and document solutions company reported second-quarter results on Thursday that blew past Wall Street estimates, sending shares up nearly 27% in premarket trading. And with a huge chunk of the stock sold short, the rally looks like a textbook short squeeze.

Let's start with the numbers. Adjusted earnings came in at 38 cents per share, while analysts were expecting a loss of 14 cents per share. Revenue rose to $1.92 billion from $1.58 billion a year earlier, beating the $1.90 billion estimate. On a GAAP basis, Xerox earned $13 million, or 7 cents per share, compared with a loss of $106 million, or 87 cents per share, a year ago. Adjusted operating income jumped to $203 million from $59 million, and the adjusted operating margin more than doubled to 10.6% from 3.7%.

The quarter included a $105 million pre-tax benefit from the recognition of IEEPA tariff receivables after a recent U.S. Supreme Court ruling. That helped, but the underlying business also showed improvement.

Now, about that short squeeze. As of the latest data, 32.09% of Xerox's public float—about 36.47 million shares—was sold short. That's an exceptionally high level of bearish positioning. When good news hits, short sellers scramble to cover their positions, buying shares and pushing the price even higher. That's exactly what happened here: the stock surged 26.78% to $3.347 in premarket trading.

CEO Louie Pastor said the company made progress on its priorities of stabilizing revenue, increasing profitability, and reducing leverage. Xerox also raised its Lexmark gross cost synergy target by $50 million to at least $350 million, signaling confidence in the integration of that acquisition.

Looking ahead, Xerox raised its 2026 outlook. The company now expects full-year revenue of approximately $7.6 billion, in line with analyst estimates. Adjusted operating income is expected to be between $555 million and $605 million, up from the prior forecast of $450 million to $500 million. Free cash flow guidance remains at about $250 million.

Segment-wise, the Print and Other segment generated $1.73 billion in revenue, while IT Solutions revenue slipped to $194 million from $213 million a year earlier. Operating cash flow improved to $37 million from a use of $11 million, and free cash flow turned positive at $11 million, compared with negative $30 million last year.

Xerox ended the quarter with $495 million in cash and cash equivalents, down slightly from $512 million at the end of 2025. Total debt stood at $4.22 billion, roughly flat from $4.25 billion.

For investors, the key takeaway is that Xerox is showing signs of a turnaround, and the market is taking notice—especially those who were betting against it.