Can an incumbent be a challenger?

https://thehill.com/homenews/campaign/5923238-trump-endorses-mike-collins-georgia-senate/ says:

A pre-primary campaign report filed with the Federal Election Commission shows the Georgia Democrat with a whopping $32.5 million in the bank, which Republicans have acknowledged makes the first-term senator a formidable challenger.

Is "the first-term senator" an incumbent? Can an incumbent be a "challenger"?

https://www.merriam-webster.com/dictionary/challenger says:

challenger

noun
chal·​leng·​er    ˈcha-lən-jər
plural -s
Synonyms of challenger
: one that challenges
specifically : a contender for a championship (as in boxing)

You are correct, and the article appears to contain an error.

As far as I can tell "the Georgia Democrat" refers to Jon Ossoff, who is currently senator for Georgia facing re-election, and thus the incumbent.

It is not normal to refer to an incumbent as a "challenger", although it does fall within the definition you cite, as he is a "contender" for the position. The article may have meant that Ossoff is formidable challenge to the Republicans.