DD: SMCI’s Co-Founder Got Arrested and I’m Just Sitting Here Holding PENG

Hello, my fellow adults. I want to tell you about a $930 million market cap company that is sitting on one of the most potentially explosive setups in the AI space right now. While all the analysts and pundits are talking about hyperscalers like Nvidia, Amazon, and Google, they’re overlooking a quiet little AI infrastructure company called Penguin Solutions (PENG). In my opinion, they just had one of the most eventful weeks in the company’s history and the market paid zero attention.

PENG trades at 0.7x revenue. That’s less than one-year sales. Meanwhile, PENG is transforming into what I believe to be the defining AI deployment platform for enterprise. Institutions have been quietly accumulating and this bad boy looks ready to pop off after April 1st earnings.

Thesis

Here’s my thesis: Hyperscalers are throwing huge amounts of capex toward building out data centers for the masses. However, major banks, hospitals, government agencies, and manufacturers WILL need to build their own AI infrastructure. I argue they would rather not use AWS, Google Cloud, or Azure because of critical issues like data sovereignty (HIPPA, TS/SCI, proprietary), cost, and latency issues. This enterprise market of individual companies has a TAM that is far larger than Wall Street is giving it credit for.

PENG is no slouch. They’ve already accumulated 25 years of HPC experience, deployed and managed over 89k GPUs, have over 3.3 billion hours of GPU runtime, AND just launched the industry’s FIRST production-ready CXL-based memory server…that SOLVES the memory wall/AI inference bottleneck.

So while everyone is over there focused on compute, PENG has already solved the next constraint that every AI deployment faces.

Mr. Jensen literally said AI infrastructure is a 1 trillion dollar annual opportunity through 2027. PENG has quietly been positioning itself to capture the enterprise market that no one is servicing.

Evidence of Narrative Shift

Let’s look at what took place just over the past 2 weeks. PENG announced three products at NVIDIA’s GTC conference PENG signed a Dell and Deepgram partnership. Dell even co-presented at the PENG booth. Launched MemoryAI, which flaunts day 1 NVIDIA Dynamo compatibility Got certified by the CXL Consortium, which is basically like saying, “yeah, they solved the memory wall.” SCMI’s co-founder got locked up for smuggling 2.5 billion dollars worth of NVIDIA chips to China. Now enterprises are looking for ways to stay compliant and keep their jobs. Oh yeah…PENG’s new CEO..what was his name..? Oh yeah. KASH SHAIKH, the former GM of ENTERPRISE SOLUTIONS at DELL. Oh, the new CPO? It’s just Ian Colle. The former GM of ADVANCED COMPUTING at AWS. He was the guy who built Amazon’s HPC/AI business from zero to a multibillion dollar portfolio. People like this don’t leave companies like Dell and Amazon to fiddle around with a tiny $930 million company unless they see something Wall Street doesn’t see.

Oh and their customer list? It includes SK Telecom, one of Korea's largest telecommunication companies. They trusted PENG to design, build, deploy, and manage one of Korea's largest GPU clusters with over 1000 NVIDIA Blackwell GPUs. And the Department of Defense (War?) has a PENG-installed supercomputing platform running at a DoD site right now.

Short Interest

But wait, there’s more! The spicy short interest just updated to 8.07 million shares. That;s 15.87% of the float, with 19.31 days to cover. There are only 5 more trading days until earnings. Do the math. I don’t see a scenario where the shorts can get out of this one alive before these catalysts smack. Meanwhile, institutions have been defending the $17.14-17.82 range hard. Most of them are underwater with cost bases around $23-26. They want to see this baby run so they can get their bosses off their asses. Morningstar fair value is $26.18. Current price is $17.80.

Dell and AWS Leadership

Kash Shaikh will hold his very first earnings call as CEO on April 1. He’s carry his balls full with: 1) the industry’s first CXL memory product, a Dell partnership, NVIDIA certification, SCMI’s competitive vacuum, a Brazil divestiture closing on March 30th which adds $46 million in cash to the books, and a refreshed website that declared Penguin Solutions as “The AI Factory Platform Company.” When he articulates his platform vision with the real-world evidence behind it, I believe the markets will be forced to re-rate PENG from a “hardware integrator” multiples, to platform multiples. That gap represents an extraordinary opportunity for investors.

Tl;dr:

PENG is a $930M AI infrastructure company trading at 0.7x revenue with 8.07M shares short (15.87% float), 19.31 days to cover, and 5 days until April 1 earnings. Shorts literally cannot exit before the catalyst. New CEO has Dell DNA, new CPO built AWS's HPC/AI business, just launched the industry's first CXL memory product at NVIDIA GTC, signed a Dell partnership, and their main competitor SMCI just had its co-founder arrested for smuggling $2.5B in NVIDIA chips to China. Morningstar fair value $25.93. Analyst target $27.75. Currently $17.80.

Position: 802 shares @ $17.74