Penguin Solutions, Inc.

Q3 FY26 net sales were a record $479 million, up 48% year over year and 40% sequentially. Non-GAAP gross margin was 28.1%, down 3.6 percentage points year over year; non-GAAP operating margin was 13.4%, up 1.5 points year over year; and non-GAAP diluted EPS was $0.84, up 79% year over year and 62% sequentially. Non-GAAP operating income was $64 million, up 67% year over year, and adjusted EBITDA was $68 million, up 51% year over year. By segment, Advanced Computing sales were $138 million, up 4% year over year; Integrated Memory was $275 million, up 111%; and Optimized LED was $66 million, up 7%. For FY26, management raised midpoint guidance to 22% net sales growth and $2.60 non-GAAP diluted EPS, with full-year non-GAAP gross margin now expected at 28.5% plus or minus 0.5 points. Segment guidance calls for Advanced Computing sales to decline 15% to 20% year over year, Memory to grow 90% to 95%, and LED to decline about 5%. Management also said preliminary FY27 planning contemplates about 30% total company sales growth and about 30% non-GAAP EPS growth from the FY26 midpoint.

Kash Shaikh framed the quarter as evidence that Penguin is becoming an AI factory platform company, with strong traction in production-scale inference and agentic AI. He emphasized that memory, software, systems, and services together give Penguin an edge as customers need more than hardware procurement; they need full-stack deployment and ongoing operations. His tone was confident and strategic, repeatedly saying the company is still in the early innings of a large long-term opportunity.

Nate Olmstead highlighted that the quarter beat expectations due to accelerating AI-driven memory demand and continued adoption of AI infrastructure solutions. He cited 28.1% non-GAAP gross margin, $70 million of non-GAAP operating expenses, $64 million of non-GAAP operating income, and $0.84 of non-GAAP diluted EPS, while noting margins were pressured by the wind-down of Penguin Edge and mix shifts. On the balance sheet, he pointed to $704 million of receivables, $498 million of inventory, $736 million of payables, and $440 million of cash and short-term investments, plus $9 million spent on share repurchases and $56 million remaining under authorization. He also said operating cash flow used $75 million in the quarter, mainly because of working-capital investment to support growth.

Analysts focused on how much of the raised Memory outlook was driven by pricing versus volume, and management said it reflected both, with CXL being a growing but still minority part of the business. Questions also addressed the new hyperscale memory customer, but management said it is not a multi-hundred-million-dollar account and is only a portion of the overall portfolio. On FY27, management said the preliminary 30% growth view is based on current customer signals, backlog, and a 3- to 6-month bookings-to-revenue lag in the AI infrastructure business; for Advanced Computing, Nate suggested a starting point of mid-teens growth, with more growth coming from non-hyperscale AI infrastructure.