Ambarella Inc: 100%+ Upside from AMBA Stock? It’s Possible

AMBA StockAmbarella Inc (NASDAQ:AMBA), a developer of low-power, high-definition (HD) and ultra HD compression and image processing system-on-chip (SoC) solutions, is regaining momentum after suffering a beating last year. Will Ambarella stock return to its position as one of the hottest growth stocks on Wall Street?

AMBA stock gained more than 57% in the past six months, or more than 68% in the last three months. Its current trading price of around $68.56 per share is still 21% down from its 52-week high of $99.35 per share. Analysts covering Ambarella stock have a 12-month consensus price target of $52.00 per share, and the highest is $86.00 a share.

Ambarella’s stock is poised to reach or surpass Wall Street’s highest price target. Why? Investors are anticipating that AMBA stock would benefit and ride along with GoPro Inc (NASDAQ: GPRO), its biggest customer, which is preparing for the launch of its new “Hero5” camera and “Karma” drone. GoPro’s management is confident that its upcoming products would pivot the company into profitability.

Take note that GPRO stock climbed more than 31% in the previous six months and over 47% in the last three months. AMBA and GPRO stocks have the same upward pattern as the release date of Hero5 and Karma moves closer.

AMBA Stock 2Q Revenue Expected to Be Strong

Ambarella is scheduled to release its second-quarter (2Q) financial results on September 1, 2016. During the previous quarter, the company projected that its 2Q revenue would be around $60.0 million to $66.0 million.

Take note that the company’s guidance did not include potential revenues from certain projects, since its customers had been experiencing a disruption in the supply of complementary metal-oxide semiconductor (CMOS) sensors from Sony Corp (ADR) (NYSE:SNE), due to the earthquake in Japan in April.

The company’s second quarter revenue will likely be in the mid-range of its guidance ($63.0 million), taking into consideration the probability that Sony failed to deliver 100% of customers’ demand for CMOS sensors. The figure represents an upside of around 10.2% from its $57.2-million revenue in the previous quarter.

However, there is a big possibility for Ambarella to achieve the high-end of its forecast ($66.0 million) because Sony managed to resume the operations of its primary manufacturing facility of image sensors for digital cameras, security cameras, and microdisplay devices in the third week of May. Sony even stated at the time that its “inventory adjustments have been made, and a timeframe for regaining supply levels is now in place.” (Source: “Status of Sony Group Business Operations Affected by 2016 Kumamoto Earthquakes (Fourth Update),” Sony Corp (ADR), May 13, 2016.)

Ambarella is growing in other business categories

During the company’s recent earnings call with analysts and investors, CFO George Laplante said the company continues to see growth in its drone, home security, and auto aftermarket businesses.

DJI, the world’s largest drone manufacturer, and its competitor Yuneec— as well as Xiaomi— are using Ambarella’s flying camera SoC solutions in their drones. Ambarella’s “A12S” and “A9SE” SoC solutions deliver full HD and 4K ultra HD video recording with advanced image stabilization. GoPro also uses Ambarella’s SoC on its new Karma drone, which will be available later this year.

Drones are obviously becoming very popular products, not just in the military and the film industry, but also in industries such as agriculture, energy, real estate, insurance, and shipping.

The global commercial drone market is currently worth around $2.0 billion. It is expected to grow to as much as $127.0 billion, according to PricewaterhouseCoopers. It is a tremendous growth opportunity for Ambarella. (Source: “Global Market for Commercial Applications of Drone Technology Valued at over $127 bn,” PwC, May 9, 2016.)

When it comes to the home monitoring market, Ambarella continues to expand its customer base. The latest companies added to its customer list include ADT Corp, San Francisco-based August, Los Angeles-based Ring, and China’s Yi Technology, which are now using Ambarella’s SoC solutions in their home monitoring cameras and/or video doorbells. AT&T Comcast Corporation and Nest are also using its chips in their home surveillance cameras.

In June, Ambarella announced that it will provide full support for the new Apple Inc.’s (NASDAQ:AAPL) “HomeKit” ecosystem that includes all home monitoring cameras, baby monitors, and entrance video doorbells. (Source: “Ambarella offers full support for the new Apple HomeKit camera and doorbell services,” Ambarella Inc, June 14, 2016.)

It is worth noting that Ambarella Inc. has a good relationship with Hikvision, the world’s largest supplier of IT security cameras, and Dahua Technology, the second-largest provider of video surveillance solutions worldwide.

In the automotive aftermarket business, Ambarella has captured additional design wins with its “A7” SoC, which was integrated into Garmin Ltd.’s (NASDAQ:GRMN) video camera recorder installed in the rearview mirror of Peugeot’s 2016 “Dongfeng 3008” model to provide lane departure warnings and forward collision warning assistance to drivers. Garmin’s recently introduced navigation products featuring built-in dash cams use Ambarella’s automotive camera solutions.

Qihoo 360 Technology Co Ltd (NYSE: QIHU) also integrated Ambarella’s “A7L” and “A12A” SoCs in its connected two dash cams to support smooth video recording, even at high speeds, and convenient gesture control, respectively. Furthermore, LeTV and JVC Kenwood Corp installed the Ambarella “A12” SoC in their dash cameras to provide better driver safety assistance features and convenience… all of which is good news for Ambarella stock.

Last year, Ambarella acquired Vislab, a developer of computer vision and intelligent systems for automotive and other commercial applications including Advanced Driver Assistance Systems (ADAS), or autonomous driving. The acquisition strengthens its competitiveness in the autonomous driving category. (Source: “Ambarella Acquires VisLab, a European Developer of Computer Vision and Intelligent Automotive Control Systems,” Ambarella Inc, July 1, 2015.)

The Bottom Line for AMBA stock

Ambarella has been diversifying its business while maintaining its leadership position in the action camera market. Its partnership with GoPro and Xiaomi as their only supplier of SoC solutions for action cameras is still solid.

The company is also enjoying positive relationships with the world’s leading producers of drone and IT security cameras, DJI and Hikvision, as well as Garmin, one of the top GPS navigation companies.

These partnerships are major tailwinds for Ambarella. Some analysts are predicting that it would achieve an annual growth rate of 14.5% over the next five years, which means AMBA stock would be trading higher at the same time. Five brokerage firms also have a “Strong Buy” rating on the Ambarella stock.