- Ambarella is successfully diversifying into high-growth markets like AI and computer vision.
- The company's investments into AI is allowing greater access to emerging growth markets.
- Ambarella reported solid Q4 earnings in the face of growing competition from the likes of Intel.
Chipmaker Ambarella (NASDAQ:AMBA) is at the forefront of the AI (artificial intelligence) and CV (computer vision) industries. Ambarella's transition away from pure video processing could send the company to new heights moving forward. The rapid advancements in AI are allowing Ambarella to access a plethora of promising industries like robotics and automotive. Ambarella's solid Q4 is evidence that the company's diversification efforts are paying off.
The company reported a quarterly revenue of $57.2 million, representing a 12% Y/Y increase. While Ambarella fiscal year revenue pretty much remained stagnant, the company is currently transitioning towards higher potential markets. The company also reported a strong GAAP quarterly gross margin of 58.2%. Ambarella is wisely doubling down on artificial intelligence as this technology starts to take off.
Emphasis on Artificial Intelligence
AI has become an increasingly integral part of emerging technologies. Ambarella is clearly aware of this trend and has decided to focus far more heavily on this emerging field. Unsurprisingly, the company is making a concerted effort to move away from a purely video processing business to the much larger AI and CV business.
Ambarella has spent years developing an AI processor architecture designed for endpoint applications. In fact, Ambarella has spent more than $350 million on video-based AI in order to access growing markets like robotics. The company's CV SoC (system-on-a-chip) combines the company's AI processor and video processor. These innovative chips are aimed at making Ambarella a more versatile company.
Ambarella's Computer Vision SoC integrates industry-leading video processing and AI.
Ambarella is leveraging its technology to diversify into new emerging sectors like robotics. In fact, the company focused much of his attention at CES 2020 on its robotics software development kit, which is a unified software infrastructure aimed at promising markets like consumer robotics, industrial robotics, and automated guided vehicles. With large corporations like Amazon (AMZN), Alibaba (BABA), and iRobot (IRBT) all heavily investing into robotics, Ambarella has a large pool of potential customers.
Security cameras and automotive still account for a large percentage of Ambarella's revenue. However, Ambarella is starting to successfully diversify its businesses. Ambarella's increasingly sophisticated AI is allowing the company to access more markets than ever before. Despite Ambarella's recent success, the company faces growing competition.
Despite Ambarella's solid quarter, the company is facing greater competition than ever. Ambarella is relatively small compared to other tech giants in the space. Intel (INTC) is one of Ambarella's largest competitors in the burgeoning CV industry. Intel, which is currently valued at $212 million, is perhaps Ambarella's greatest long-term threat given the company's experience and vast resources.
Intel bought advanced driver-assistance systems and self-driving company Mobileye for a stunning $15.3 billion in order to break into the autonomous vehicle industry. The company also acquired CV chipmaker Movidius in order to cement itself is a powerhouse in the CV industry. Intel has even taken some of Ambarella's customers in recent years.
Intel is clearly planning to make a huge splash in the growing CV industry and will pose a huge threat to Ambarella. Below is an image of Mobileye's self-driving car.
With autonomous technologies only growing more popular, Ambarella will face more competition than ever. So far, Ambarella appears to be maintaining a strong foothold in important markets like automotives. Furthermore, Ambarella's recent success in newer markets indicate that the company still has a competitive advantage over much of the industry.
Perhaps a more immediate threat facing Ambarella is the coronavirus. The coronavirus is already has starting to have a financial impact on Ambarella. The company expects to face an elevated LIBOR moving forward largely as a result of this virus. Every day operations will also be impacted as Ambarella is taking steps to mitigate the impact of the coronavirus. It is still uncertain how the coronavirus will ultimately play out, putting a greater deal of uncertainty on Ambarella.
Ambarella's large footprint in Asia could be a problem given the coronavirus outbreak.
Ambarella is at the forefront of highly promising AI, video processing, and computer vision industries. However, it is still questionable whether or not the company will have the resources to deal with growing threats from technology giants like Intel. So far, Ambarella has done a good job of maintaining a strong market presence.
Ambarella currently has a market capitalization of $1.7 billion and a forward P/E ratio of 121. Investors clearly see a large growth path ahead for the company. While this view is understandable given the promise of video processing, AI, and CV, these industries are set to become far more crowded. Investors would be wise to stay cautiously optimistic on Ambarella at the company's current valuation.
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