While artificial intelligence (AI) continues to dominate headlines, propelling giants like Nvidia (NVDA) and Microsoft (MSFT) into the spotlight, one lesser-known contender is making a significant impact behind the scenes. Penguin Solutions, Inc. (PENG), formerly SMART Global Holdings, is rewriting the playbook for high-performance computing (HPC) and enterprise infrastructure.

With a rich 25-year legacy, Penguin Solutions seamlessly integrates advanced computing, memory solutions, and edge platforms to power AI-driven applications from core to cloud to edge. What sets Penguin apart is not just its technology but its powerful alliances. Through strategic partnerships with industry heavyweights like Nvidia and Advanced Micro Devices (AMD), Penguin leverages best-in-class components to create comprehensive, scalable solutions that redefine enterprise infrastructure.

Despite its low-profile presence and a recent earnings miss, Penguin Solutions managed to earn a “Buy” rating from none other than Goldman Sachs earlier this month. And, in a notable vote of confidence, JMP Securities has also recently stepped forward with a bullish outlook on PENG stock. But what’s fueling this enthusiasm? Let’s take a closer look to find out.

About Penguin Solutions Stock

Valued at around $958 million by market cap, Grand Cayman-based Penguin Solutions, Inc. (PENG) is revolutionizing digital transformation by harnessing the power of emerging technologies like HPC, AI, and the Internet of Things (IoT). From edge to core to cloud, Penguin delivers cutting-edge solutions that turn complex challenges into opportunities. With a diverse product portfolio spanning computing, memory, and LED technologies, the company empowers clients across industries such as education, financial services, government, energy, healthcare, and software.

While this emerging AI stock has underperformed on a YTD basis, with shares down approximately 4.2%, its recent momentum tells a different story. Over the past month alone, PENG has staged an impressive comeback amid growing optimism on Wall Street, posting gains of roughly 14% to outpace the broader S&P 500 Index ($SPX) over this time frame.

From a valuation standpoint, PENG stock is trading at 10.29 times forward adjusted earnings and 0.71 times sales, offering a steep discount compared to the tech sector medians of 25.27x and 3.20x, respectively.

Penguin Solutions Slides After Q4 Earnings

After the company released its fiscal 2024 Q4 earnings report on Oct. 15, shares of Penguin took a nosedive, crashing a notable 23.5% in the subsequent trading session. The steep drop came in response to disappointing results, with both top- and bottom-line figures failing to meet Wall Street’s expectations. Total net sales for the quarter declined 1.7% year over year to $311.2 million, compared to the projected $325 million.

Despite registering a 5.7% year-over-year improvement, the company’s adjusted EPS of $0.37 also arrived below analysts’ estimates by almost 7.6%. Breaking down segment performance, Penguin’s Intelligent Platform Solutions segment delivered a solid $149.4 million in revenue, reflecting a 2.7% year-over-year increase and accounting for nearly 48% of the company’s total revenue. In contrast, its Memory Solutions segment faced challenges, posting an 8.9% annual decline in revenue.

Nevertheless, management remains optimistic. CEO Mark Adams expressed satisfaction with the company’s Q4 performance, emphasizing their third consecutive quarter of sequential top-line growth. 

“Our Company’s transition to Penguin Solutions reinforces our commitment to solving the complexities of AI infrastructure, managing our customers’ implementations with the design, build, deployment, and management of cutting-edge AI solutions,” the CEO added.

Looking forward to fiscal 2025, the company expects net sales to grow by 15% year over year, with a margin of error of plus or minus 5%. Additionally, management anticipates adjusted EPS for the entire year to land between $1.50 and $1.90. 

Analysts tracking Penguin Solutions project the company’s GAAP EPS to improve by 101.5% year over year to $1.33 per share in fiscal 2025 and rise another 26.3% to $1.68 per share in fiscal 2026.

How Do Analysts Rate Penguin Solutions Stock?

Despite the company’s weaker-than-expected Q4 performance, on Nov. 1, Goldman Sachs initiated coverage with a “Buy” rating and a $21 price target. Analyst Michael Ng expressed confidence in the company’s ability to capitalize on the rapidly expanding enterprise AI compute market, leveraging its 25 years of experience in designing, building, deploying, and managing HPC projects.

Despite some exposure to cyclical markets, with memory and LED accounting for half of its revenue, Ng is optimistic about Penguin’s strong positioning in the AI market. 

More recently, JMP Securities initiated coverage of PENG on Nov. 18 with a “Market Outperform” rating and a $23 price target. JMP views the company as a compelling long-term investment opportunity, highlighting several key factors that could drive significant upside.

A major catalyst for JMP’s optimistic outlook is Penguin's strategic transformation from a cyclical memory business to a more stable and growing enterprise AI solutions provider. As AI investments continue to surge, JMP believes Penguin is well-positioned to unlock strong ROI for its clients.

While noting a few risk factors, analysts at JMP wrote that “Penguin’s history in high-performance computing hardware and brand expertise dovetail nicely into managing the complexity of AI, a narrative the business is still in the early days of capturing.”

Overall, Wall Street is highly optimistic about PENG stock, with a consensus “Strong Buy” rating. Of the six analysts offering recommendations, five advise a “Strong Buy,” and one suggests a “Moderate Buy.” 

The stock’s bullish bandwagon is gaining members fast; one month ago, only four analysts covered PENG, with three recommending a “Strong Buy.”

The average analyst price target of $24.17 indicates an expected 33.2% potential upside from the current price levels, while the Street-high price target of $27 suggests that PENG could rally as much as 48.8% from here.