If You Think Ambarella's Rally Is Finished, Think Again

Ambarella (AMBA) has been a great performer over the last few months as the stock has appreciated over 60% since its last earnings report. While many investors think Ambarella’s rally has gone too far, I think there’s still a buy case to make for the company.

Majority of Ambarella’s revenue arrives from image processing SoCs for security cameras and in-dash cameras. However, the company is facing a tough competition from trivial opponents as well as significant player Qualcomm (QCOM), which proposes mobile-based SoCs for 4G connectivity specifically.

As a matter of fact, the drone market is rising at a healthy rate, and Ambarella has formerly detailed that the drone market already contained approximately 10 percent of its entire revenue.
The chips manufactured by Ambarella are used by various large companies such as market leader DJI Innovations.

As an outcome, if the drone market takes off, it can be certainly said that Ambarella’s sales to drone manufacturers will surge and counter the feeble growth in its other product categories.

Moreover, keeping in mind that the company’s largest customer GoPro is about to introduce its first drone later this month together with the design wins Ambarella formerly has in the drone market, it is no shock the company is plugging the competitive benefit of its all-inclusive drone platforms.

The company will need to ship the image processing chips for the period of third quarter so as to come across the holiday season schedule.
If You Think Ambarella
Image by MabelAmber / Pixabay
On the other hand, consensus predicts revenues escalating from $64 million during Q2 to $95 million in Q3. Obviously, the numbers look conservative as the entire end market is escalating and GoPro projects to exceed previous year’s revenue levels.

Apart from this, the company has also increased R&D spending by around 30 percent this year. The company’s latest drone camera proposing, for instance, brag several features comprising 4K resolution and electronic image stabilization that trivial players can even think to counterpart. Due to this, Ambarella is accomplishing market share in the superior high-definition and ultra-high-definition camera divisions.

Conclusion

Although Ambarella has staged a sensational rally over the last few months, the stock can still take off if the hype generated by the Karma launch leads to strong sales for GoPro. Moreover, the drone market is expected to skyrocket in the years to come, and although Ambarella is not the only company in the space, it can benefit a lot from it.
Published on Sep 20, 2016
By Akshansh Gandhi

Copyrighted 2016. Content published with author's permission.

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