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Valued at $2.25 billion, Ambarella Inc. (AMBA) is a small-cap tech company focused on creating semiconductor solutions for enabling high-definition (HD) and ultra-HD compression, artificial intelligence (AI) processing, and image signal processing worldwide. AMBA offers AI-powered vision solutions primarily used in automotive cameras, such as automotive video recorders, front advanced driver assistance system cameras, cabin monitoring systems and driver monitoring system cameras, electronic mirrors, central domain controllers, and even autonomous vehicles (AVs).
Incorporated in 2004, the Santa Clara-based company is a component of the Russell 2000 Index (RUT), a benchmark for small-cap stocks.
AMBA stock has underperformed the broader equities market in 2024, down more than 10% on a YTD basis. However, thanks to a well-received quarterly earnings report, the chip stock gapped sharply higher in late August, and now boasts a one-month return of more than 31%.
Ambarella Gaps Higher on Earnings
Ambarella posted its fiscal Q2 2025 results last week, which featured a beat on both earnings and revenue. The semiconductor specialist posted a narrower-than-expected loss of $0.13 per share, while revenue for the quarter rose 2.6% year over year to $63.72 million, topping Wall Street’s $62.17 million forecast on robust growth in both the IoT and Audio segments, alongside its edge AI division.
During the quarter, the company’s non-GAAP gross margin contracted to 63.3% from 64.6% in the year-ago period, while its operating expenses totaled $47.7 million, in line with its guidance range of $47.5-$49.5 million. Further, its cash balance improved 8.11% YoY to $219.8 million.
“We are now realizing initial revenue ramps from certain IoT and Automotive customers, especially from our new products,” said CEO Fermi Wang in a statement.
Management also issued Q3 guidance that crushed Wall Street's forecasts, with revenue expected between $77 million and $81 million - well beyond the $69 million consensus. Non-GAAP gross margin for Q3 is expected between 62.5% and 64.0%, with the low end of that range matching analysts' estimates. Adjusted operating expenses are expected in the band of $49-$51 million.
Investors sent AMBA stock 10.6% higher on Aug. 28 in response, marking its biggest daily gain in nearly three months.
What's the Analyst Forecast for AMBA?
Ambarella’s recent quarterly release prompted several price-target hikes from analysts. Morgan Stanley raised their price target on AMBA to $73 per share while backing an “Overweight” rating, as analyst Joseph Moore cited expectations for IoT to lead near-term growth and edge AI inference to drive longer-term gains.
Stifel also backed a “Buy” rating and issued a price-target hike from $75 to $80, after the firm was “impressed with the company’s 2nd consecutive guidance raise." Even Bank of America's Vivek Arya, who backed a “Sell” rating on AMBA after earnings, upped the stock's price target from $50 to $57 due to company-specific catalysts.
Overall, a total of 16 analysts are covering the stock, with a “Moderate Buy” consensus rating. That's based on 7 “Strong Buy” ratings, 1 “Moderate Buy” rating, 7 “Holds,” and 1 “Moderate Sell.”
The mean price target for AMBA now stands at $74.23, representing expected upside of 35.5% to current levels. For investors seeking long-term upside in the autonomous vehicle space, this small-cap semiconductor stock could be worth scooping up at current levels.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
