On Wednesday, Susquehanna maintained a Positive rating on Ambarella (NASDAQ:AMBA) shares, increasing the price target to $85 from $70. The firm's analyst highlighted Ambarella's strong performance, citing the company's earnings report released Tuesday evening.
Ambarella's results surpassed expectations, and the company provided robust guidance, driven by new product introductions, particularly AI inference processors. Edge AI now constitutes approximately 70% of Ambarella's total revenue, marking a record contribution, with AI System on Chips (SoCs) anticipated to generate about $80 million in the current year.
Ambarella's management is optimistic about AI's role as a growth driver in both the automotive and Internet of Things (IoT) sectors for the fiscal year 2026. In the automotive space, the company secured e-mirror projects with Xpeng (NYSE:XPEV) and Honda/Dongfeng, and an L2 Advanced Driver-Assistance Systems (ADAS) arrangement with Smart Automobile.
Despite a revised automotive revenue funnel estimate of approximately $2.2 billion, down from $2.4 billion, due to project delays and cancellations, Ambarella is actively pursuing additional contracts for its CV3-AD family of AI SoCs.
In the IoT segment, Ambarella announced its first customer for the CV7 family and boasted wins with major companies such as Bosch (NS:BOSH), Verkada, and Grab. The company also anticipates selling over one million units of the CV5 series, with unit prices ranging from $25 to $50. Consequently, Ambarella has raised its revenue forecast for fiscal year 2025, expecting a year-over-year increase of 22-24%, an adjustment from the previously projected mid-to-high teens growth rate.
Despite a decline in gross margin results due to product mix and unexpected growth from legacy products, management expects margins to normalize within the target range of 59% to 62%. Operational expenses were lower than expected due to stringent expense management, although they are projected to rise quarter-over-quarter to support Ambarella's burgeoning AI opportunities in ADAS, Large Language Models (LLM), and AI IoT markets.
Susquehanna's analyst concluded by expressing enthusiasm for Ambarella's upcoming product demonstrations at the Consumer Electronics Show (CES) in early January, which traditionally showcases new product capabilities and applications. The firm's increased price target reflects confidence in Ambarella's sustained AI-driven growth across the automotive and IoT sectors.
In other recent news, Ambarella has reported robust third-quarter results, with a marked 63% year-over-year revenue increase to $82.7 million. The financial services firm, Stifel, has responded to these strong results by raising its price target for Ambarella from $80.00 to $95.00 and maintaining a Buy rating. This comes after Ambarella's revenue surpassed Stifel's estimate by 4.6%, driven by significant demand in the automotive and Internet of Things (IoT) sectors.
In terms of other recent developments, Ambarella has returned to non-GAAP profitability with a net profit of $4.5 million and increased its cash and marketable securities to $226.5 million. AI-related revenue now constitutes approximately 70% of the total revenue. The company's automotive project funnel is valued at around $2.2 billion, and the company is developing 2nm process technology for next-generation AI applications.
Looking ahead, Ambarella has provided a midpoint revenue guidance of $78.0 million for the fourth quarter of fiscal year 2025. The company also forecasts a 22-24% revenue growth for fiscal 2025, with continued growth expected in both automotive and IoT segments into fiscal 2026. Despite facing project delays and cancellations, primarily in Europe and the U.S., Ambarella remains confident in its growth trajectory.
InvestingPro Insights
Ambarella's recent performance and future prospects, as highlighted in the article, are reflected in several key metrics and insights from InvestingPro. The company's stock has shown significant momentum, with a 29.59% price return over the last three months and a strong 36.49% return over the past six months. This aligns with the positive outlook presented in the article, particularly regarding Ambarella's AI-driven growth in automotive and IoT sectors.
An InvestingPro Tip notes that 13 analysts have revised their earnings upwards for the upcoming period, which corroborates the company's raised revenue forecast for fiscal year 2025 mentioned in the article. Additionally, Ambarella's liquid assets exceeding short-term obligations suggest financial stability as the company pursues growth opportunities in AI technologies.
However, it's worth noting that Ambarella is currently trading at a high revenue valuation multiple, with a Price to Book ratio of 5.16. This could indicate that investors are pricing in significant future growth, aligning with the company's optimistic projections for AI-driven expansion.
For readers interested in a deeper analysis, InvestingPro offers 11 additional tips for Ambarella, providing a more comprehensive view of the company's financial health and market position.
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