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SMART Global's (SGH +16%) Q3 (May) results shine brightly enough to send its shares to gap-fill from last quarter's sell-off, maintaining its solid run from April lows. SGH, which operates three businesses, Intelligent Platform Solutions (IPS), Memory Solutions, and LED Solutions, was coming off a massive correction despite delivering similar numbers in Q2 (Feb), sending its shares as much as 35% lower. The main problem last quarter was sluggish IPS growth, a discouraging development given the segment's focus on AI and high-performance computing (HPC). It also did not help that the broader investor sentiment at the time was turning more bearish.

However, in Q3, even though IPS still experienced a yr/yr decline, it was half the drop from Q2. Furthermore, recovery within SGH's Memory business is becoming more apparent, consistent with management's remarks last quarter that the memory cycle was turning upwards. Meanwhile, LED demand improved in Q3, reversing last quarter's sequential sales contraction. As such, investors feel confident that much of SGH's woes are behind it.

• In Q3, SGH registered adjusted EPS of $0.37, topping estimates by a wider margin than in Q2, on a less pronounced top-line decline of 12.7% yr/yr to $300.58 mln, which was in line with analyst expectations.
• IPS revs compressed by 15% yr/yr to $144.97 mln, far better than the 36% plunge last quarter. The segment features SGH's Penguin-branded products, which enjoyed increased activity, including a few key customer wins, such as a multi-million-dollar non-hardware contract. The pure software win was a testament to SGH's competitive edge in helping customers get their data centers up and running. This bodes well for the future of IPS, particularly in an AI-led environment where customers purchase data center infrastructure but have trouble running it.
• Memory sales also headed lower in Q3, falling by 25% yr/yr to $83.30 mln, reflecting the ongoing inventory adjustments from customers. However, unlike in Q2, revenue climbed higher sequentially in Q3, signaling that the worst may finally be behind SGH. Management remarked that sales should only improve sequentially from here, especially as AI continues to gain steam as the tech requires high-capacity memory.
• SGH's LED business is its most minor and tends to deliver muted growth. In Q3, revenue was flat yr/yr but inched 6% higher sequentially. Management was upbeat that backlog and channel visibility were improving.
• Looking ahead, SGH predicts Q4 (Aug) revenue to potentially turn positive yr/yr for the first time since 3Q22, projecting $300-350 mln, the midpoint of which represents a 3% bump. All segments are expected to register sequential revenue growth. Similarly, the company's adjusted EPS outlook of $0.25-0.55 translates to a 14% improvement yr/yr. However, gross margins are projected to take a step back in Q4 primarily due to SGH shipping more hardware than software.

Bottom line, positivity surrounded each of SGH's segments in Q3, a noticeable difference compared to Q2. As a result, investors remain optimistic, helping the stock now recover all of its losses triggered by Q2 results.