Chipmaker, Ambarella, Inc. (NYSE:AMBA) was soaring earlier this week, but AMBA stockholders are wary of the rally after the company guided next-quarter revenues to be in line with analyst estimates. AMBA stock has seen the most tumultuous times in the last six months as the stock oscillated to all-time highs in the $120.00 range, after which it dropped all the way down to the $40.00s. But here’s what AMBA stockholders are missing that could send AMBA stock soaring in the near future.
Ambarella has a diverse and strong arsenal of high-grade chips for security, automotive, and wearable cameras. But the most underrated and rarely discussed segment of the company is flying cameras. AMBA stock bears often overlook that the company is already rolling out drone chips in an industry that’s still raw and has huge growth prospects in the next two years. Ambarella’s drone cameras already have a competitive moat with high-definition image quality at low power. In its latest quarter alone, Ambarella’s flying cameras segment was the most significant contributor to the company’s gross margins.
The drone market is only starting to warm up. E-commerce and technology giant, Amazon.com Inc. (NASDAQ:AMZN) has recently announced its drone delivery service, Prime Air, which will become active in four to five years. Closely following suit is Alphabet Inc. (NASDAQ:GOOGL), which has also lately announced its Project Wing, under which the tech giant will start delivering products via drones within minutes, and plans to roll out the service way earlier than Amazon-by 2017.
The greatest news for drone makers came earlier last month when the U.S. Federal Aviation Administration (FAA) decided to allow some exemptions to certain unmanned aircrafts systems (UAS) in unrestricted airspaces for specified time periods. Following the decision, companies like Intel and Qualcomm are also showing interest in the drone chip market. But early movers like Ambarella will inevitably grab the biggest market share before the industry gets ripened with competition.
Now, the bane of AMBA stock’s success on the market has been one of Ambarella’s biggest clients—GoPro, Inc. (NYSE:GPRO), whose meager performance caused a major setback to AMBA stock. Mr. Market has been unfairly gauging the two stocks with the same barometer, in spite of their inherent operational differences. GoPro may be Ambarella’s big client, but it’s not the only client. The company sells its semiconductors to various camera companies worldwide, including China’s Xiaomi.
Financially, the company has a healthy balance sheet with no debt and reasonable cash reserves, having witnessed strong revenue growth. The high short interest has been the biggest cause of the stock’s downward spiral and many are citing the recent rally in the stock a result of a short squeeze. Regardless, the stock has more upside than traders are ready to accept.
The Bottom Line on AMBA Stock
The rising consumer interest in aerial photography and videography in sports, news, and event coverage could prove a boon to Ambarella’s long-term success. It may take another year or so before the drone industry begins to ripen, but Ambarella is all set to maximize its growth potential beforehand.
As this niche continues to expand, investors will soon be seeing AMBA stock firing on all cylinders.