Ambarella AMBA shares have plunged 13% year to date (YTD) against the Zacks Computer and Technology Sector and S&P 500 index’s return of 19.9% and 18%, respectively.
Ambarella stock has also underperformed the Zacks Electronics - Semiconductors industry’s growth of 23.6% in the same time frame.
Here’s Why AMBA Shares Are Tumbling
Ambarella is grappling with several headwinds, including the slowdown of electric vehicle (EV) market growth. Per a Forbes report, the EV market is expected to grow 16% in 2024 compared with 64% in 2023. Ambarella supplies several of its products for the EV category and Advanced Driver Assistance System, which include central domain controllers, cabin monitoring system, driver monitoring system, electronic mirrors and automotive video recorders. The slump in the EV automotive category has been a major concern for AMBA.
Ambarella is also facing demand curb among its customers. Ambarella’s system on chips (SoC) is used in Internet of Things (IoT) devices alongside automobiles. These customers are going through inventory accumulation that needs time to clean up. This has created a weakened demand for Ambarella’s products.
Ambarella has long been facing a slowdown in sales of its high-margin action cameras after its loss of business from GoPro and persistent softness in the drone market. This is hurting its top line growth. All these factors have contributed to investors’ weariness, causing the stock to underperform the broader tech sector.
Ambarella YTD Performance
Image Source: Zacks Investment Research
AI and VR Can be AMBA’s Savior
AMBA is making steady progress in the development and delivery of computer video solutions based on artificial intelligence (AI) SoCs, branded as CVFlow. The company’s CVFlow architecture-based AI inference processors, including CV3, CV2, CV5, CV25 and CV22 SoCs, are attracting positive consumer feedback. Contribution to total revenues from these SoCs increased to 60% in fiscal 2024, and AMBA expects the CV family to be the key driver of its revenue growth in fiscal 2025.
In a bid to decrease its reliance on GoPro, Ambarella has forayed beyond it and has also contributed to products like dash cams by Garmin GRMN. AMBA has also entered into the Virtual Reality (VR) camera space expanding its product portfolio in the high-end VR camera space.
Competitive Challenges for AMBA
While Ambarella is getting a lift from the use of its SoCs inside Garmin’s Dashcam 46, 56, 66 and Dashcam Mini, AMBA faces stiff competition from NVIDIA NVDA in the AI and IoT marketplace and Qualcomm QCOM in the Automotive market.
AMBA’s CV2 is in direct competition with NVIDIA’s Xavier chips. Its automotive chips also compete with Qualcomm’s Snapdragon 602 Automotive Platform.
Here’s What Investors Should Do
Ambarella is facing a mixed bag of challenges from the slowdown of the automotive space, stiff competition and inventory accumulation of its customers. However, demand for its CVFlow chips from the AI market still gives it some hope. The Zacks Value score of F suggests that AMBA is overvalued at present. We suggest investors to wait for a better entry time. AMBA currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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