Rosenblatt raises Penguin Solutions stock price target on AI growth

Rosenblatt has increased its price target for Penguin Solutions (NASDAQ:PENG) stock to $100, up from $80, with the firm maintaining a Buy rating on the stock. As of now, PENG shares are trading at $64.21, marking a remarkable 228% increase year-to-date. However, InvestingPro analysis indicates the stock might be slightly overvalued compared to its Fair Value estimate.

The firm's management anticipates significant growth in Advanced Computing and Memory segments, projecting a 40% and 50% increase respectively during fiscal year 2027. Furthermore, Rosenblatt anticipates non-hyperscale AI compute to nearly double to around $600 million, driven by accelerated pipeline and bookings. The analyst highlighted that the growing heterogeneous NVIDIA and AMD architectures enhance the strategic value of vendor-agnostic ClusterWare.

CXL (Compute Express Link) technology is rolling out faster than anticipated, with management targeting more than 10% of Memory revenue in fiscal 2027, resulting in a $50 million to $60 million quarterly run-rate. This could lead to an approximate $300 million in fiscal 2028. Rosenblatt tied its $100 price target to 20 times its expected fiscal 2028 earnings per share of $5.01.

The company's current gross margin sits at 27.66%, with CXL and Services poised to influence operating leverage and push gross margins above 30% in the second half of fiscal 2027. Penguin Solutions recently delivered fiscal fourth-quarter results that beat Wall Street expectations in terms of both profit and sales. The company reported adjusted earnings of $1.00 per share and revenue of $567 million, surpassing analyst forecasts of 77 cents per share and $519.9 million in revenue.

Additionally, the company upped its guidance for the fiscal year, projecting total revenue between $2,250.9 million and $2,597.2 million, a 40% increase year-over-year at the midpoint. This projection exceeds consensus estimates of $2,212.4 million. Penguin Solutions' Market Outperform rating from Citizens was also reaffirmed, with a price target of $85.00.

These developments suggest a more optimistic growth outlook for the company due to strong performance and strategic positioning in the market.