We started getting bullish on Ambarella (NASDAQ:AMBA) over the past year for several reasons including 5G, the IoT, and EVs all of which rely on semiconductors and more and more heavily on light-sensing, imagery, and vision technology. Ambarella is the leader in terms of AI Computer vision and that is becoming more and more apparent in the results. The latest news shows that not only is Ambarella in demand, but that its customers are reaching production-level with their end-products and that is great news indeed.
“Demand for our AI vision silicon products accelerated in FY21 with more than 175 unique customers purchasing engineering parts and/or development systems, including more than 40 who reached production volumes. Cumulatively, we expect to have shipped more than 2 million computer vision SoCs (system on a chip) by the end of Q1, with more than 300,000 CV SoCs shipped into the automotive market,” says CEO Fermi Wang. “In FY22 we intend to continue to build on our AI vision momentum, driving CV to at least 25% of revenue, while maintaining a high level of execution in the face of the ongoing public health, geopolitical and supply-chain challenges.”
Ambarella Blows Past Consensus, Guides Higher
The only real evidence anyone needs of Ambarella’s success is its results. The company’s revenue is once again growing sequentially and YOY as demand accelerates. Unlike the GoPro days, however, this demand is going to continue growing long into the future. The $62.14 million in revenue is up from $56 million in the 3rd quarter and 8.6% better than last year. And, not only is the company growing, but at a pace far in excess of what the analysts were predicting. The consensus of $57.67 would have been an improvement but is still 770 basis points less than the actual.
Moving down the report, the company was able to leverage the revenue gains through economies of scale and widened the adjusted gross margin by 270 basis points. This led to a $0.06 beat on the top line, $0.14, and nearly double what the market was expecting. The GAAP earnings were also better than expected and improved from last year but still show a net loss. Looking forward, the company is expecting the strength and momentum to continue and have guided accordingly. The Q1 outlook is expecting sequential growth in the range of 8-10% and YOY growth in the range of 17% and both better than expected.
The Analysts Love What They See
The analysts are already out with a flurry of notes that include no few price target increases. Analysts from Morgan Stanley, Baird, and Rosenblatt all maintained their ratings (a consensus Buy) but upped their price targets to the $135 with the high-price target, also set in the wake of the release, at $150. The key takeaways from the notes are that Ambarella’s fledgeling AI Computer Vision business and been validated and turned a major corner.
The Technical Outlook: Ambarella Is Breaking Out
The price action in Ambarella has been volatile post-release but one thing is clear; this stock wants to move higher. Shares popped more than 10% intraday and are still up 4% or so with several of hours of trading left in the session but there is some serious resistance present. Price action triggered a heavy round selling at the freshly set all-time high that is coincident with long-term resistance at the previous all-time highs. The previous highs are from the 2016/2017 period way back when GoPro was still a hot item. The good news is that previous resistance appears to be providing support, if that holds out then we expect to see this stock begin to move higher again and the $140 level is the least of our forecast.
