7) SMART Global Holdings, Inc. (NASDAQ:SGH)
Short % of Float (As of 30 August 2024): 15.95%
Forward P/E as of 23 September 2024: 9.67x
SMART Global Holdings, Inc. (NASDAQ:SGH) is a memory-focused company, which is engaged in the designing and development of enterprise solutions in the US and internationally.
Short sellers believe that SMART Global Holdings, Inc. (NASDAQ:SGH)’s strategic pivot towards AI solutions comes with numerous risks, which might weigh over the performance in the near term. They believe that higher R&D investments, needed to compete effectively in the AI space, might impact its profitability. Moreover, the supply chain constraints and extended lead times for components are some of the additional challenges that might weigh over SMART Global Holdings, Inc. (NASDAQ:SGH)’s gross margins.
That being said, Wall Street analysts believe that SMART Global Holdings, Inc. (NASDAQ:SGH) should be aided by its conservative strategy and efforts to strengthen its Services business. SMART Global Holdings, Inc. (NASDAQ:SGH) continues to focus on the growth of its AI infrastructure, with high-density memory solutions targeted at AI workloads in development. Its transition from a memory module organization to a company that is focused on AI infrastructure and high-performance computing should aid in long-term client relationships and service expansion.
Market experts opine that the company is a leader in HPC implementation for AI, a market that has strong market opportunities. There are expectations that the company’s efforts to enhance its go-to-market strategy might gain some traction.
In 3Q 2024, SMART Global Holdings, Inc. (NASDAQ:SGH)’s gross margin increased to 29.6% as compared to 29.2% in the same period in 2023 mainly because of a favorable mix from higher service revenue in the IPS business. For 4Q 2024, the company expects net sales of ~$325 million (+/- $25 million) and a gross margin of ~29.5% (+/- 1.5%).
Rosenblatt Securities reissued a “Buy” rating on the shares of SMART Global Holdings, Inc. (NASDAQ:SGH), setting a price target of $35.00 on 3rd July. In 2Q 2024, 27 hedge funds had investments in the company. Meridian Funds, managed by ArrowMark Partners, released its first quarter 2024 investor letter. Here is what the fund said:
“SMART Global Holdings, Inc. (NASDAQ:SGH) is a diversified technology company with leading market positions in memory, LEDs, high-performance computing (HPC), and the Internet of Things (IoT). Our interest was piqued when the company hit a rough patch in 2019-early 2020 as several factors led to an earnings decline. Volatility in its memory business caused by weakness in Brazil, new product investments the company had made ahead of revenue, and order delays in its HPC business all converged. While none of these developments are particularly unusual, it is uncommon for all three to turn negative at the same time. Our thesis was that the company’s impressive new management team could not only smooth out some of the volatility in the business but also drive growth through superior capital allocation and organic investment. With the stock trading at less than 8x earnings at the time of our investment (Q3 2020), we believed the risk/reward was excellent. The stock was strong in the quarter due to positive earnings results and guidance. The memory business appears to be in a cyclical upturn within a strong long-term secular growth trend driven by increased memory content in everything from phones to data center equipment to cars. Smart Global remains a leader in HPC implementation for AI, a market that remains strong, and there is anticipation that the company’s efforts to enhance its go-to-market strategy should gain traction. We believe the long-term risk/reward is still strong and maintain a large position in the stock, though we reduced our position during the quarter as part of our regular risk management process.”
