Rosenblatt Sees 200% Upside In SMART Global, Coming From Data Center Demand For Specialty Memory

Rosenblatt analyst Kevin Cassidy expected SMART Global Holdings, Inc SGH to deliver a slight beat-n-raise to consensus 3QF22 and 4QF22 outlook. Cassidy maintained his Buy recommendation and $60 price target.

Cassidy saw upside coming from data center demand for Specialty Memory. The demand for SGH's Penguin Solutions AI/HPC systems has remained robust. However, supply chain constraints likely limited shipments. 

He modeled the Intelligent Platform Solutions (18% of 2Q22 revenue) business to be up 10% q/q and down 5% y/y to $90 million. IPS' customers include large enterprises like Meta Platforms Inc META, where SGH is helping provide AI-optimized capabilities for Meta's cutting-edge supercomputer.

He modeled the LED Solutions (24% of 2Q22 revenue) business segment to be flat q/q and up 4% y/y as the business continues to benefit from the transition to outsourced manufacturing and customer wins in various markets.

He modeled the Memory Solutions' (58% of 2Q22 revenue) Specialty Memory segment to be up 3% q/q at $135 million and up 11% y/y. 

Specialty Memory were custom modules for US-based networking and data center companies. For the Brazil business, which is mostly memory modules for PCs and smartphones assembled in Brazil, he modeled revenue to be down 3% sequentially, in line with seasonality. 

He remains comfortable with his above consensus estimate for 20% y/y revenue growth for IPS and SGH total revenue increasing 24% y/y. 

Last quarter SGH management announced a $75 million share repurchase authorization. He expects that with the shares trading at 18-month lows with forward P/E valuation at 3-year lows, the share repurchases may have begun during 3QF22. 

Price Action: SGH shares traded higher by 0.50% at $20.15 on the last check Wednesday.