Investors in Penguin Solutions, Inc. (NASDAQ:PENG) received new insights when investment firm Rosenblatt adjusted its price target for the stock from $36.00 to $30.00 on October 8. This revision comes while maintaining a “Buy” rating, suggesting that analysts see potential in the company despite recent challenges.
The adjustment follows Penguin’s announcement that its revenue for the fourth quarter of fiscal 2025 fell slightly below consensus expectations. While the company reported a Non-GAAP earnings per share (EPS) that exceeded forecasts, its management projected a 6% year-over-year revenue growth for fiscal 2026, significantly lower than the 10% growth anticipated by analysts. This cautious outlook is primarily attributed to uncertainties surrounding revenue from software and services linked to Meta, given the lack of clarity regarding new hardware deployments.
Market Dynamics and Growth Prospects
Rosenblatt highlighted that the lower revenue guidance primarily reflects the timing issues associated with Meta’s ongoing RSC (Response Services Center) buildout and Penguin’s own fiscal calendar. Despite these challenges, Penguin Solutions has been successful in diversifying its customer base beyond large hyperscalers. The recent addition of a tier-one financial institution and a major consumer products company signals a strategic shift aimed at broader market engagement.
The company’s Advanced Computing segment has demonstrated robust performance, achieving a remarkable 75% year-over-year revenue growth for fiscal 2025. Looking ahead, the Integrated Memory business is expected to grow between 10% and 20% year-over-year in fiscal 2026. Analysts believe that Penguin’s offerings in high-performance computing (HPC) and artificial intelligence (AI) software and services are well-positioned to capitalize on increased enterprise AI adoption.
Rosenblatt advises investors to consider acquiring PENG shares during this period of weakness tied to Meta’s hardware order timing. The firm remains optimistic about Penguin’s potential in the evolving AI landscape, emphasizing that the current market conditions may present a buying opportunity.
While acknowledging the inherent risks associated with PENG as an investment, Rosenblatt believes that certain AI stocks, including Penguin Solutions, could yield significant returns in a shorter timeframe. The firm draws attention to other AI stocks that may offer even greater upside potential, urging investors to conduct thorough research before making investment decisions.
As the market for AI and HPC solutions continues to expand, Penguin Solutions stands at a crossroads, with its strategic decisions and timing in customer engagements likely to play a crucial role in its future performance. Investors will be keen to monitor developments as the company navigates these challenges and opportunities in the coming fiscal periods.
