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Penguin Solutions (PENG)
NASDAQ:PENG
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Penguin Solutions
(NASDAQ:PENG)
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Rating:55Neutral
Price Target:
$19.00
▼(-5.71% Downside)
The score is primarily supported by improving fundamentals and strong free-cash-flow generation, plus reaffirmed full-year guidance. It is held back by weak technical momentum (below key moving averages with negative MACD) and very poor valuation on the provided P/E, alongside earnings/mix headwinds discussed on the call (Penguin Edge wind-down, lower gross-margin outlook, and timing/supply-chain risks).
Positive Factors
Free cash flow generation
Consistent, sizable FCF provides durable internal funding for R&D, capex, M&A or share buybacks without immediate reliance on capital markets. Strong cash conversion (FCF ~92% of net income TTM) improves resilience to cycle swings and supports deleveraging over multiple quarters.
Margin expansion trend
Sustained operating margin improvement across six quarters signals structural operational gains: disciplined expense control, better product mix, and scalability of services. This trend increases long-term profit durability and creates buffer versus modest industry margins.
High-growth Integrated Memory
Rapid Integrated Memory growth shifts revenue mix toward a higher-growth, scalable product line that now represents a material share of sales. This diversification reduces reliance on lumpy hardware cycles and underpins longer-term revenue and margin upside if the segment sustains its expansion.
Negative Factors
Elevated leverage
Material outstanding debt constrains strategic flexibility: interest and principal obligations reduce capital for reinvestment and increase vulnerability if margins or demand weaken. With operating cash covering only a portion of leverage, downturns could force cost cuts or asset sales.
Wind‑down of high‑margin Penguin Edge
Terminating a high‑margin product line and lacking hyperscale sales materially reduces the company’s revenue and margin base. Management estimates these factors subtract materially from growth and Advanced Computing contribution, creating a structural headwind to topline and profit expansion.
Lumpy Advanced Computing revenue
Wide guidance ranges and back‑half sales weighting reflect persistent timing, conversion and customer concentration risks in core hardware sales. Structural lumpiness reduces revenue visibility, complicates capacity planning, and can pressure margins and working capital across multiple quarters.
Penguin Solutions (PENG) vs. SPDR S&P 500 ETF (SPY)
Market Cap
$1.07B
Dividend YieldN/A
Average Volume (3M)1.13M
Price to Earnings (P/E)89418.0
Beta (1Y)2.44
Revenue Growth10.76%
EPS GrowthN/A
CountryUS
Employees2,700
SectorTechnology
Sector Strength88
IndustryHardware, Equipment & Parts
Share Statistics
EPS (TTM)0.49
Shares Outstanding52,560,158
10 Day Avg. Volume1,835,983
30 Day Avg. Volume1,129,646
Financial Highlights & Ratios
PEG Ratio-0.46
Price to Book (P/B)2.15
Price to Sales (P/S)0.94
P/FCF Ratio12.82
Enterprise Value/Market Cap1.04
Enterprise Value/Revenue0.81
Enterprise Value/Gross Profit2.84
Enterprise Value/Ebitda12.46
Forecast
1Y Price Target
$25.75Price Target Upside27.79% Upside
Rating ConsensusStrong Buy
Number of Analyst Covering4
EPS Forecast (FY)2.04
Revenue Forecast (FY)$1.46B
Penguin Solutions Business Overview & Revenue Model
Company DescriptionPenguin Solutions, Inc. engages in the designing and development of enterprise solutions worldwide. It operates through three segments: Advanced Computing, Integrated Memory, and Optimized LED. It offers dynamic random access memory modules, solid-state and flash storage, and other advanced integrated memory solutions for networking and telecom, data analytics, artificial intelligence and machine learning applications; and supply chain services, including procurement, logistics, inventory management, temporary warehousing, programming, kitting, and packaging services. The company also provides Penguin Computing that focus on technical computing for core and cloud environments through high-performance computing and AI solutions; and Penguin Edge, an edge computing solution for embedded and wireless applications, such as high-performance products for government, health care, manufacturing, and telecommunications applications. In addition, it offers Stratus, which provides simplified, protected, and autonomous fault tolerant computing solutions in the data center and at the Edge through hardware and software services; and solutions to education, energy, financial services, government, hyperscale, and manufacturing markets. Further, the company provides LED chip products comprising blue and green LED chips based on gallium nitride, and related materials under Cree LED brand; and surface mount devices under the Cree LED XLamp and J Series brands. It sells its products directly to original equipment manufacturers, enterprise, government and other end customers through direct sales force, e-commerce, customer service representatives, on-site field application engineers, independent sales representatives, distributors, integrators, and resellers. The company was formerly known as SMART Global Holdings, Inc. and changed its name to Penguin Solutions, Inc. in October 2024. Penguin Solutions, Inc. was founded in 1988 and is based in Grand Cayman, Cayman Islands.
How the Company Makes MoneyPenguin Solutions generates revenue through multiple streams: the sale of hardware components such as servers and storage systems, subscription fees for software solutions, and consulting services that assist clients in implementing and optimizing their IT infrastructures. Additionally, the company engages in strategic partnerships with other technology firms to co-develop solutions, which can lead to shared revenue opportunities. Ongoing support and maintenance contracts further contribute to stable, recurring revenue, while bespoke solutions for enterprise clients help to boost profit margins.
Penguin Solutions Earnings Call Summary
Earnings Call Date:Jan 06, 2026
(Q1-2026)
| % Change Since: |
Next Earnings Date:Apr 07, 2026
Earnings Call Sentiment Positive
The call presented a generally constructive picture: solid cash generation, margin expansion trend, strong and rapid growth in the Integrated Memory business, growing enterprise and sovereign AI pipeline, and disciplined expense management. Offsetting these positives are notable headwinds from the wind down of the high‑margin Penguin Edge business and absence of hyperscale hardware revenue this quarter, weakness in the LED segment (notably China), modest gross margin pressure and some working capital/timing risks tied to supply chain and new customer onboarding. Management reaffirmed full-year guidance while shifting mix assumptions and flagged second-half weighted sales, illustrating confidence in underlying demand but also acknowledging timing and supply constraints.Q1-2026 Updates
Positive Updates
Revenue and Top-Line Performance
Total net sales of $343 million in Q1 FY2026, up 1% year-over-year (CEO noted +2% sequentially). Product net sales were $279 million (up 3% YoY) and services net sales were $65 million.
Strong Integrated Memory Growth
Integrated Memory revenue of $137 million (40% of company net sales), up 41% year-over-year and up 3% sequentially; management raised full-year memory net sales growth outlook to 20%–35%.
Advanced Computing Momentum (Excluding Penguin Edge/Hyperscale)
Advanced Computing reported $151 million in Q1 (44% of sales). While down 15% YoY on a reported basis, management stated that Advanced Computing net sales excluding Penguin Edge and hyperscale hardware grew 52% year-over-year, indicating healthy underlying enterprise demand and new customer bookings.
Improving Profitability and Margin Expansion Trend
Non-GAAP operating income of $42 million (up 1% YoY) and non-GAAP operating margin of 12.1% (up 0.1 ppt YoY). This marks the sixth consecutive quarter of year-over-year non-GAAP operating margin expansion.
Stable Non-GAAP Gross Margin
Non-GAAP gross margin of 30% in Q1, which management says compares favorably to the midpoint of the full-year outlook despite a modest YoY decline.
Earnings and Quarter-over-Quarter EPS Improvement
Non-GAAP diluted EPS of $0.49 in Q1, flat year-over-year and up 14% sequentially.
Strong Cash Generation and Balance Sheet
Cash, cash equivalents and short-term investments of $461 million (up $68 million YoY). Cash flow from operations of $31 million in Q1, an increase of 125% YoY. Share repurchases of $15 million (~791,000 shares) in the quarter with $96.5 million remaining authority.
Cost Discipline
Non-GAAP operating expenses of $61 million, down 4% year-over-year and down 6% sequentially, driven by lower personnel-related and subcontract services costs.
Customer Wins, Pipeline Growth and Strategic Initiatives
New customer bookings in defense and education, growing pipeline across financial services, oil & gas, telecom, manufacturing and sovereign cloud opportunities. Launched a rapid development workshop program and continued partnerships with NVIDIA, AMD, CDW and SKT; development work on ICE ClusterWare and optical memory appliance (OMA) underway.
Negative Updates
Optimized LED Weakness
Optimized LED (Cree LED) revenue of $55 million in Q1, down 18% sequentially; management cited weak demand in China and softness among certain large U.S. OEM customers. Full-year LED net sales expected to decline between -15% and -5%.
Impact of Wind Down of Penguin Edge and Lack of Hyperscale Hardware
No hyperscale hardware revenue recognized in the quarter and ongoing wind down of high‑margin Penguin Edge business contributed to revenue headwinds; company expects Penguin Edge sales to essentially cease by end of fiscal 2026. Management estimates combined effect of these assumptions is ~14 percentage points unfavorable to total company net sales growth and ~30 percentage points unfavorable to Advanced Computing.
Reported Advanced Computing Decline (Reported Basis)
Advanced Computing net sales were down 15% year-over-year on a reported basis (despite +52% growth when excluding Penguin Edge and hyperscale), reflecting the lumpy revenue model and customer concentration effects.
Gross Margin Pressure and Guidance Reduction
Non-GAAP gross margin was down 0.8 percentage points YoY and 0.9 percentage points sequentially. Management lowered full-year non-GAAP gross margin outlook to 29% (+/- 1 ppt), a 50 basis point reduction attributable to a higher mix of lower-margin memory sales.
Services Revenue Decline
Services net sales totaled $65 million, down 9% year-over-year.
Supply Chain and Timing Risks
Management noted ongoing supply constraints and extended lead times for certain components (critical for Advanced Computing and Integrated Memory), and highlighted timing unpredictability for converting new customer master agreements into purchase orders and shipments.
Working Capital Dynamics and Receivables
Net accounts receivable increased to $342 million from $276 million a year ago; days sales outstanding rose to 51 days (from 45 days), reflecting higher sales volumes and sales linearity variations.
Uncertainty in Advanced Computing Linearity
Full-year Advanced Computing guidance remains wide (−15% to +15%), indicating material timing risk and uncertainty around when pipeline opportunities will convert and ship; company expects a back-half weighted year with ~53%–54% of sales in H2 FY2026.
Company Guidance
Penguin confirmed its FY‑26 outlook at a midpoint implying 6% net‑sales growth and non‑GAAP diluted EPS of $2.00 (±$0.25), with non‑GAAP gross margin of 29% (±1ppt), non‑GAAP operating expenses of $250M (±$10M), an expected non‑GAAP diluted share count of ~55M and a non‑GAAP tax rate of 22%; segment guidance is Advanced Computing down 15% to up 15% year‑over‑year, Integrated Memory up 20%–35%, and Optimized LED down 15% to 5%. They assume no hyperscale hardware revenue and a wind‑down of Penguin Edge (together ~14ppt adverse to company net‑sales growth and ~30ppt to Advanced Computing), expect roughly 53%–54% of sales in the second half, and flag supply‑chain/lead‑time and memory‑supply variability as key risks to the outlook.Penguin Solutions Financial Statement Overview
Summary
Financials are improving, led by strong cash generation (TTM operating cash flow ~$130M and free cash flow ~$122M) and a return to modest profitability on ~14% revenue growth. Offsetting this is still-thin and historically volatile earnings (recent loss years) plus a meaningful debt load (~$504M), which limits flexibility if demand or margins soften.Income Statement
TTM (Trailing-Twelve-Months) results show a clear recovery: revenue grew ~14% with positive profitability (about 1.9% net margin and ~4.2% operating margin). Gross margin has been relatively steady around ~28–29% over time, suggesting a stable core product economics. Offsetting this, the company’s earnings power remains thin and volatile—large net losses in 2023 and 2024 preceded the current profit, and margins are still modest for the industry, leaving less room for execution missteps or demand swings.63
Positive
Balance Sheet
Leverage has improved meaningfully versus prior years: debt-to-equity is ~0.88 in the latest periods compared with much higher levels in 2022–2023, and return on equity is now positive (~4.7% TTM (Trailing-Twelve-Months)) after being deeply negative during the loss years. However, the balance sheet still carries substantial debt (~$504M TTM (Trailing-Twelve-Months)) and equity declined versus the most recent annual figure, which reduces financial flexibility if profitability weakens again.52
Neutral
Cash Flow
Cash generation is a bright spot: TTM (Trailing-Twelve-Months) operating cash flow (~$130M) and free cash flow (~$122M) are strong relative to reported earnings, with free cash flow running at roughly 92% of net income. Free cash flow growth is also very strong in the TTM (Trailing-Twelve-Months) period, indicating improving cash conversion. The main drawback is that operating cash flow covers only about a quarter of total debt, so while cash flow is healthy, the company is not in a “low leverage” position.76
Positive
| Breakdown | Dec 2025 | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 |
|---|---|---|---|---|---|
Income Statement | |||||
| Total Revenue | 1.37B | 1.17B | 1.44B | 1.40B | 1.06B |
| Gross Profit | 394.27M | 342.91M | 415.17M | 391.05M | 237.97M |
| EBITDA | 112.42M | 62.93M | 68.54M | 113.49M | 19.81M |
| Net Income | 21.58M | -52.47M | -187.53M | 66.56M | 21.31M |
Balance Sheet | |||||
| Total Assets | 1.62B | 1.47B | 1.51B | 1.57B | 1.34B |
| Cash, Cash Equivalents and Short-Term Investments | 453.75M | 389.48M | 390.81M | 313.33M | 222.99M |
| Total Debt | 733.03M | 725.88M | 856.85M | 651.14M | 398.26M |
| Total Liabilities | 1.01B | 1.08B | 1.28B | 1.19B | 1.03B |
| Stockholders Equity | 595.96M | 391.38M | 222.47M | 371.61M | 310.25M |
Cash Flow | |||||
| Free Cash Flow | 100.07M | 57.76M | 64.97M | 84.57M | 136.68M |
| Operating Cash Flow | 109.08M | 77.19M | 104.39M | 104.93M | 153.35M |
| Investing Cash Flow | 24.97M | 107.58M | -298.57M | -38.97M | -84.18M |
| Financing Cash Flow | -63.46M | -210.10M | 236.42M | 73.88M | 2.85M |
Penguin Solutions Technical Analysis
Positive
20.15
Price Trends
20.29
Negative
22.47
Negative
21.27
Negative
Market Momentum
-0.24
Positive
49.88
Neutral
24.15
Neutral
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For PENG, the sentiment is Positive. The current price of 20.15 is above the 20-day moving average (MA) of 19.95, below the 50-day MA of 20.29, and below the 200-day MA of 21.27, indicating a neutral trend. The MACD of -0.24 indicates Positive momentum. The RSI at 49.88 is Neutral, neither overbought nor oversold. The STOCH value of 24.15 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for PENG.
Penguin Solutions Risk Analysis
Penguin Solutions disclosed 68 risk factors in its most recent earnings report. Penguin Solutions reported the most risks in the "Finance & Corporate" category.
Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy
Latest Risks Added 0 New Risks
Penguin Solutions Peers Comparison
UnderperformOutperform
Sector (61)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
73 Outperform | $2.41B | 37.96 | 16.40% | 0.16% | 23.70% | 14.78% | |
72 Outperform | $1.71B | 46.95 | 3.37% | 1.44% | -2.93% | -40.33% | |
72 Outperform | $1.06B | 160.03 | 2.64% | ― | -6.13% | -76.92% | |
72 Outperform | $1.04B | 55.03 | 6.58% | 0.22% | -2.88% | 26.14% | |
61 Neutral | $37.18B | 12.37 | -10.20% | 1.83% | 8.50% | -7.62% | |
58 Neutral | $1.79B | -27.47 | -5.34% | ― | -4.87% | -235.48% | |
55 Neutral | $1.07B | 89,417.99 | 4.85% | ― | 10.76% | ― |
* Technology Sector Average
PENG
Penguin Solutions
20.28
0.32
1.60%
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Penguin Solutions Corporate Events
Business Operations and StrategyM&A Transactions
Penguin Solutions to Divest Remaining Stake in Zilia
Neutral
Dec 30, 2025
On December 29, 2025, SMART Modular Technologies (LX) S.à r.l., an indirect subsidiary of Penguin Solutions, agreed to sell its remaining 19% stake in Brazilian electronic components maker Zilia Technologies to Lexar Europe B.V. for $46.08 million, a deal that will make Zilia a wholly owned subsidiary of the buyer and terminate the existing quotaholders’ agreement signed in November 2023. The transaction, which follows Lexar’s November 2023 purchase of the other 81% stake in Zilia, is expected to close remotely by March 30, 2026, or by April 28, 2026 if required approvals are delayed, and will complete Penguin’s exit from Zilia, potentially streamlining its portfolio while consolidating ownership of Zilia under the Lexar/Longsys corporate group.
The most recent analyst rating on (PENG) stock is a Hold with a $23.50 price target. To see the full list of analyst forecasts on Penguin Solutions stock, see the PENG Stock Forecast page.
Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.