Goldman Sachs Bullish on Penguin Solutions: AI Demand Expected to Drive 40% Stock Upside

Goldman has a new AI play where it sees nearly 40% upside

Penguin Solutions could be a breakout player in the expanding artificial intelligence boom, according to Goldman Sachs. The Wall Street investment bank on Friday initiated coverage of the enterprise AI company, which changed its name from SMART Global Holdings last month , with a buy rating and a $21 per share price target. Goldman's forecast implies roughly 40% upside from Thursday's $15.05 close. Penguin shares had pulled back more than 20% in 2024 through Thursday, but are about 5.5% higher in early trading Friday. PENG YTD mountain Penguin Solutions shares in 2024. Penguin designs and manufactures enterprise solutions for markets including computing, memory and light-emitting diode ( LED) lighting. Its advance computing segment has exposure to AI and machine learning, as does its memory sector. "PENG is well positioned to address the growing enterprise AI compute opportunity through its Penguin Computing integrated solution, where the company has 25 years of experience designing, building, deploying and managing high-performance computing projects," Goldman analyst Michael Ng said. While Penguin's LED and memory businesses are more cyclical and thus face some drawbacks, Ng said the potential growth runway thanks to generative AI can more than make up for any decline in revenue. "We are encouraged by PENG's exposure to enterprise AI demand, which should help drive PENG revenue to grow at a 13% 5-yr CAGR (F2024-29) and expand operating margins, driven by growth in its compute business and a recovery in the more cyclical memory and LED markets," Ng added.

Goldman bullish on Penguin Solutions stock as AI demand boosts revenue outlook By Investing.com

On Friday, Goldman Sachs (NYSE:GS) began covering Penguin Solutions (NASDAQ: PENG), issuing a Buy rating and setting a price target of $21.00 for the company's stock. The financial institution highlighted Penguin Solutions' strong position in the enterprise AI compute sector, bolstered by the company's 25 years of experience in high-performance computing projects. Penguin Solutions' revenue streams are diverse, with approximately half of its total revenue in fiscal year 2024 deriving from the more volatile memory and LED markets. Despite this cyclicality, Goldman Sachs expressed optimism about the company's involvement in the enterprise AI space, which is anticipated to contribute to a revenue growth rate of 13% over a five-year compound annual growth rate (CAGR) from fiscal year 2024 to 2029. The forecast also includes an expansion in operating margins, fueled by the growth of Penguin Solutions' compute business and a rebound in the memory and LED segments. The analyst noted that the current trading multiple for Penguin Solutions at 9 times the next twelve months' (NTM) price-to-earnings (P/E) ratio is appealing. This valuation is thought to reflect the company's historical exposure to more cyclical markets and its inconsistent performance in capitalizing on AI infrastructure investments. Goldman Sachs' stance on Penguin Solutions is based on the expectation that the demand for enterprise AI will drive the company's revenue growth and margin expansion. This positive outlook is set against the backdrop of Penguin Solutions' established expertise and anticipated recovery in its more cyclical business areas.