Key Points
-
Integrated memory products now make up more than half of Penguin Solutions’ total revenue.
-
The company’s rising sales are fueled by significant multiyear trends such as agentic AI and the pivot toward inference accounting for a greater share of AI workloads.
-
The market’s response to its recent convertible note offering gives new investors an opportunity to buy the dip.
- 10 stocks we like better than Penguin Solutions ›
Penguin Solutions (NASDAQ: PENG) is a relatively small AI stock that has almost quadrupled this year amid soaring revenue. The company has been a beneficiary of the rising demand for memory products, and should enjoy a multiyear tailwind that propels its gains even further.
Integrated memory now makes up more than half of total revenue
The best way to summarize Penguin Solutions is that it’s an AI solutions and memory business, and that its memory segment has become a game-changer. Not long ago, it accounted for less than a third of total revenues. As that segment grew into a higher percentage of total revenue, bullish investors expected it to lift the entire business.
This thesis is now on full display, as integrated memory makes up more than half of Penguin Solutions’ revenue. This part of the business more than doubled year over year to $275 million in the company’s fiscal 2026 third quarter. Overall revenue was up by 48% year over year, and this quarter’s results prompted management to raise its fiscal 2026 guidance.
“We are seeing very strong AI-driven customer demand for memory and AI infrastructure solutions,” CEO Kash Shaikh told investors. “As inference and agentic AI workloads become more persistent and context-rich, memory is increasingly becoming one of the primary performance and scalability bottlenecks.”
This commentary suggests growth is just starting to heat up, especially for its CXL memory products that let data centers store, scale, and transmit data with near-zero latency. That is the foundation that could produce a 10x rally like those that some other AI stocks have delivered in recent years.
A proposed private offering of convertible notes presents a buying opportunity
Although investors liked Penguin Solutions’ financial numbers, not everyone applauded when the company said it was raising capital through a sale of convertible notes. The stock pulled back by about 7% from its peak on the news, as investors do not like it when their shares are diluted.
While issuing convertible notes can cause short-term friction for a stock, such capital raises often wind up as small blips in a growth stock’s upward trajectory if the company in question continues to gain market share at a fast rate.
Last quarter, Penguin Solutions’ operating income more than quintupled year over year, and the company achieved a 9.3% net profit margin.
If Penguin Solutions deploys the funds from its capital raise wisely — which is highly likely given recent successes — that move will only strengthen the business.
Whether a stock offers the potential for a 10x return depends in part on when an investor buys shares. However, dips along the way don’t alter a company’s long-term thesis. This one is allowing new investors to load up on Penguin Solutions at a bit of a discount.
Should you buy stock in Penguin Solutions right now?
Before you buy stock in Penguin Solutions, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Penguin Solutions wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $398,160!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,249,202!*
Now, it’s worth noting Stock Advisor’s total average return is 918% — a market-crushing outperformance compared to 209% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Penguin Solutions. The Motley Fool has a disclosure policy.
