As AI expands from early tech adopters to industries like finance, oil and gas, defense, and education, the need for services and partners to build and deploy AI infrastructure has intensified. Companies with deep experience in building and supporting ecosystems for high-performance computing, like Smart Global Holdings (NASDAQ:SGH), are well-positioned to benefit from these developments. The market reacted quickly to the company’s recent earnings miss, and SGH stock is down over 30% in the past month, pushing it into value territory.
Therefore, value investors looking for a stock with upside exposure to the AI boom should take notice.
Building AI Solutions
Smart Global Holdings designs, builds, deploys, and manages a wide range of computing solutions covering edge, core, and cloud. The company specializes in high-performance and high-availability computing components, primarily through the creation and advanced packaging of specialty memory.
SGH’s product line includes DRAM modules, solid-state storage, advanced memory solutions for data analytics, AI, and ML. The firm also provides application-optimized LED chips and components for various lighting applications.
The company has made growth through acquisitions a strategic focus and has successfully executed five significant acquisitions since 2018.
Smart Global Holdings’ Recent Financial Results
The company recently disclosed its financial results for the second quarter of Fiscal 2024. Results were mixed. Net sales for the quarter were $284.8 million, marking a 3.9% increase compared to the previous quarter. However, this number fell short of the Wall Street consensus estimate of $285.1 million.
The non-GAAP gross margin was reported at 31.5%, slightly declining from 33.3% in the preceding quarter. The non-GAAP earnings per share (EPS) for the quarter were $0.27, up from $0.24 in the previous quarter and slightly above the consensus estimate of $0.25. The company finished the quarter with total cash and short-term investments amounting to $466 million.
Management has given guidance for Q3 FY24, with net sales projected to be approximately $300 million (+/-$25 million). Its estimated gross margin is 32%, and diluted earnings are expected to be roughly $0.30 (+/-$0.15).
What Is the Price Target for SGH Stock?
SGH stock is volatile, almost doubling in price before the most recent drop. It currently trades at the lower end of the 52-week price range of $12.66-$29.99 and continues to demonstrate negative price momentum, trading below the 20-day (22.87) and 50-day (22.68) moving averages. This has pushed the stock into relative value territory, with a P/S ratio of 0.7x, comparing favorably to the technology sector average of 4.3x and the semiconductor industry average of 8.5x.
Analysts following the company have been bullish on the stock. SGH is rated a Strong Buy based on the recommendations and 12-month price targets four Wall Street analysts issued in the past three months. The average price target for SGH stock is $28.38, which represents 67.7% upside potential from current levels.
The Bottom Line on SGH Stock
The rising demand for AI infrastructure solutions across diverse industries presents a significant opportunity for Smart Global Holdings. Although the company’s recent Q2-2024 financial results reflected mixed outcomes, they displayed a progressive trend with a marginal beat on EPS. The recent stock price slide has positioned SGH as a relative value play within the booming AI sector, making it an intriguing proposition for value investors.
