Could AMBA Stock Drop Like GoPro?
The bane of Ambarella, Inc. (NASDAQ:AMBA) stock’s success on the market has been its wrongful association with GoPro, Inc. (NYSE:GPRO). Although GoPro is a big client, it is not Ambarella’s only customer. The market has, however, always gauged the two on the same scale. If Ambarella’s management hinted at weakening demand, GPRO stock went for a nosedive. Likewise, if GoPro’s management guided lower, Ambarella stock took a hit. Their fate has been tied together.
What the market has failed to see is Ambarella’s diversified business, contrary to GoPro’s. GoPro is often dubbed a “one-trick pony” for its sole product line of wearable cameras. Ambarella, on the other hand, has a much wider scope in video processing semiconductor chips for a large portfolio of wearable, automotive, security, sports, and flying camera clients.
Ambarella Is No GoPro
Demand for Ambarella’s top three categories, excluding the wearables segment that serves GoPro, is on the rise. Incidents like the recent Planned Parenthood shooting have sent a wave of paranoia across the country and security concerns are continuing to drive demand in the security cameras segment. The consumer security IP segment currently makes up only a small portion of Ambarella’s revenue, but management is expecting to hit the upper end of the single digits this quarter.
Automotive cameras have been gaining in consumer interest, as well, particularly dashboard cameras. Ambarella’s advanced driver assistance systems in the automotive category hold promising potential, too. There’s a lot of commotion around driverless cars with tech giants like Alphabet heavily invested in bringing this technology to the world. U.S. authorities have lately given a green signal to the technology and we will soon see new entrants in this industry that will further drive up demand for Ambarella’s systems.
Likewise, flying cameras have a lot of popularity in the fast-growing drones industry, where their utility spans from security surveillance to event videography and live news broadcasting. In the flying cameras market, GoPro is starting to enter. Ambarella, in contrast, is already catering to the biggest players.
Bigger companies like Intel and Qualcomm are also involved in a similar chip-making business and plan to tap into Ambarella’s flying cameras market, but what gives Ambarella an edge over peers is how efficiently it brings together two opposites: ultra high-definition (UHD) quality at low power.
Ambarella’s camera chips offer state-of-the-art technology with longer battery life. This is why the company has not only been successful in the local U.S. industry, but boasts strong clientele in Europe and particularly China.
Since the beginning of this year, GPRO and AMBA stocks have moved in tandem, but I’m finally seeing a divergence in their price movements, which makes me hopeful that the market now sees Ambarella’s underlying fundamentals that set it apart from GoPro.
Chart courtesy of www.StockCharts.com
Ambarella is due to report earnings on Thursday (tomorrow) and I’m optimistic the company will beat analysts’ expectations. Ambarella has beaten earnings in four of the last five quarters and I see another one coming. Although, we might see a decline in the wearables category in the third-quarter results, flying, security, and automotive camera segments will boost the overall revenue numbers.
The Bottom Line on AMBA Stock
In a nutshell, Ambarella’s strong top and bottom-line growth, growing cash flows, and a clean balance sheet, coupled with its promising growth potential, make AMBA stock look cheap at current levels.