If you're in search of growth stocks to add to your portfolio, narrowing your focus to companies with low market caps and high financial growth rates increases your chances of finding ones that can produce 10x returns. Penguin Solutions (PENG 9.44%) fits that description as demand for memory solutions heats up amid the AI build-out.
Looking beyond overall growth rates reveals a compelling picture
Penguin Solutions specializes in memory products and AI infrastructure. The company experienced a 6% year-over-year revenue decline in its fiscal 2026 second quarter, which ended Feb. 27. That looks concerning on the surface, especially since it operates in one of the hottest industries right now.
NASDAQ: PENG
Key Data Points
However, the dip was due to a loss of momentum in legacy parts of the business. Management is prioritizing the parts that are connected to the AI build-out, and growth on that front shows up in Penguin Solutions' integrated memory segment, which made up roughly half of the company's total revenue in the quarter.
The integrated memory business at Penguin Solutions increased by 63% year over year and 25.7% sequentially. So its overall revenue will experience meaningful growth as memory grows into a larger portion of total revenue, which is currently happening.
Image source: Getty Images.
The company signed five new AI and high-performance computing customer deals last quarter, and demand from clients in that segment contributed to management raising its full-year guidance for net sales and EPS. Yet investors who only take a surface-level look at the stock will likely remain focused on that 6% revenue decline.
Setups like that can lead to a stock being undervalued for a while. While Penguin Solutions has more than tripled year to date, its $3 billion market cap suggests that relatively few investors know about it.
The customer base is massive
Any business needs to attract new customers to stay afloat and produce revenue growth. Penguin Solutions is no exception, but the types of customers it mentioned in its fiscal Q2 press release demonstrate why its revenue could scale up quickly.
"Enterprises, governments, and neocloud providers are racing to build AI factories, as platforms scale to power the next generation of inference workloads," CEO Kash Shaikh told investors.
Those types of customers have deep pockets and massive AI needs, which means Penguin Solutions won't have to secure many new deals to generate sizable revenue movement.
Penguin Solutions is also getting an increasing amount of publicity in all of the right circles. Nvidia recently named it as one of its AI factory specialized partners. Earning a stamp of approval from Nvidia can open the floodgates for a tech company and help it attract more customers. These two have been working together for more than a decade.
A high-quality customer base in one of the fastest-growing industries right now suggests that Penguin Solutions could potentially produce 10x returns for patient investors.
