AMBA Stock: 1 Simple Reason to Be Bullish on Ambarella Inc

AMBA StockWhat to Expect from AMBA Stock

Ambarella Inc (NASDAQ:AMBA) stock hit a rough patch last year after its big client, GoPro Inc (NYSE:GPRO), failed to impress Wall Street with its underwhelming performance.

Ambarella is now set to report its fourth-quarter results after the bell today. Mr. Market is anxiously waiting to see if Ambarella’s Q4 results can deliver something positive following another of GoPro’s poor quarters.

Ambarella stock has long been punished for its association with GoPro. This is because Mr. Market has grossly missed Ambarella’s quiet shift to industries beyond action cameras.

My advice to investors is to not fall for this “association fallacy.” Instead, watch out for the strong fundamentals playing in Ambarella’s favor.

Let me explain how Ambarella is effectively decoupling itself from GoPro.

For starters, Ambarella has launched two new chips—“H2” and “H12”—at the beginning of this year for its sports and flying camera segments. These chips are Ambarella’s best-yet concoction in technology and are expected to drive strong demand in the coming days. The “H2” chip is particularly interesting for the drone industry for its next-generation features. The chip offers fast video-shooting and processing in the ultra-high definition (UHD) 4k-grade at low battery power.

The good news is that the drone industry finally took off this year after the U.S. Federal Aviation Administration, for the first time, opened registrations for drones. This marked the beginning of a new era, as drone technology officially went commercial. Better yet, Ambarella is poised to take a big chunk of the market share in this industry for having one of the top drone-makers—DJI—as one of its clients.

Likewise, its security IP chips are expected to find traction in the fast-growing “Internet of Things” (IoT) industry, where daily use security devices are interconnected to create a machine-to-machine communication ecosystem.

To give you a better idea of how this works, take the example of your home security camera connected to your baby’s monitor, ultimately connected to your smartphone. In the IoT ecosystem, you’re able to control all of these devices with the swipe of your thumb on your smartphone.

Ambarella’s chips could very well be powering these security devices. Again, note that Ambarella has the biggest security industry player—Hikvision—as its client.

I’m also particularly bullish on its automotive segment. Ambarella’s advanced driver assistance systems (ADAS) could pull strong demand from the automotive industry, as semi-autonomous and driverless technologies hit the mainstream automobile industry. In fact, big players like BMW, Mercedes-Benz, Ford, and Tesla are already betting on it.

In a nutshell, Ambarella has little to worry about since the rest of its segments have promising growth potential in the coming years, even if the action camera segment (that sells to GoPro) fails.

The Bottom Line on AMBA Stock

AMBA stock has lost a big chunk of its value in the last two quarters, which were particularly terrible for GoPro. It’s safe to say that the bad news is now already priced into AMBA stock, which made fresh lows last month.

Ambarella has a history of delivering conservative guidance and then beating street expectations. The company managed to deliver positive surprises even through GoPro’s weakest quarters, by using the same strategy. I don’t see why this quarter would be any different. I believe another beat might be coming, which could push AMBA stock back on an upward trajectory.

Long story short, Ambarella stock is worth a second look ahead of its fourth-quarter earnings release today.