AMBA Stock Poised to Surge?
Ambarella Inc (NASDAQ:AMBA) stock was trading at around $128.00 last June. Today, investors are relieved it’s trading at around $39.00 instead of $34.00—as it was last February. Granted, those who bought Ambarella at its highs are not going to be doing any dancing in the streets. However, at the current price, Ambarella stock is worth considering.
Chardan Capital, Deutsche Bank, and Morgan Stanley all reiterated a “Hold” rating for Ambarella stock. Some did better. Stifel Nicolaus kept a “Buy” rating on Ambarella. Despite the collapse of Ambarella stock, the latest quarter saw the company reporting $0.64 earnings per share. This was much higher than the Zacks’ consensus estimate of $0.48. (Source: “Ambarella Inc (AMBA) Stock Rating Reaffirmed by Chardan Capital,” The Hilltop News, March 10, 2016.)
Ambarella has suffered in 2015 and 2016 because of its close association with GoPro Inc (NYSE:GPRO) and action cameras. Yet, Ambarella is not a one-trick pony. It has shown its ability to move beyond GoPro. This is because Ambarella’s new “H2” and “H12” chips are addressing one of the fastest-growing market segments.
The H2 chip is particularly interesting for use in drones. (Source: “Ambarella makes an even bigger bet on drones with new chip launched at CES,” MarketWatch, March 6, 2016.) The chip offers fast video shooting and processing in ultra-high definition (UHD) 4K-grade at low battery power.
The U.S. Federal Aviation Administration has opened registrations for drones, setting the runway for a surge in drone sales. Ambarella supplies chips to DJI, one of the top drone makers worldwide.
Additionally, Ambarella’s security IP chips should appeal to the fast-growing “Internet of Things” (IoT) industry, where daily-use security devices are interconnected to create a machine-to-machine communication ecosystem. Hikvision, a major security industry player, is a big Ambarella client.
Meanwhile, Ambarella’s advanced driver assistance systems could pull strong demand from the automotive industry, as semi-autonomous and driverless technologies hit the mainstream. Google, Ford, Toyota, Tesla, Mercedes Benz, BMW, and others all have driverless models in the pipeline.
As for the market for UHD TVs, it could grow exponentially. Ambarella is one of the few chip manufacturers with products that are optimized for UHD TV devices. These offer a resolution that is four times as high as that of conventional HD devices.
The Consumer Electronics Association trade group estimates that in 2016, Americans will buy 1.43 million UHD TV devices. This represents a 60-fold increase over 2013, when UHD TVs appeared on store shelves for the first time. (Source: “The Tech Portfolio Built to Beat the Market,” Money Morning, May 21, 2015; http://moneymorning.com/2015/05/21/the-tech-portfolio-built-to-beat-the-market/.) But these are still only five percent of the total market. The growth phase of the new TV market has really only just begun.
After the fierce stock price drop—or collapse, if you will—since the summer of 2015, AMBA stock appears to have found solid ground around the high $30.00s, marking the point of a course reversal in the upward direction.
Ambarella’s video compression and image processors can be found among others in smartphones, “connected” cars, “wearable” technology, ultra-high definition TV (UHDTV), security cameras for the “smart homes,” and advanced television broadcast systems. As mentioned above, while Ambarella occupies an important position in the drone space, this is but one of its growth segments.