AMBA Stock: Why Ambarella Inc Is up 25% in 5 Days

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Ambarella Inc (AMBA) stock has been on a face-melting rally recently, roaring 25% higher in the last five days of trading alone. Shares of the chipmaker, which specializes in making semiconductors that enable high-quality, low-power HD video are up more than 5% today on high volume.

AMBA Stock: Why Ambarella Inc Is up 23% in 5 DaysAMBA stock has been taking off like a rocket ever since posting fiscal first-quarter earnings last week that demolished expectations. Earnings per share came in at 34 cents on revenue of $57.2 million; both figures trumped the 28 cents and $57 million analysts expected.

For a stock that’s been tied to GoPro Inc (GPRO) for so long, it sure is nice to “de-couple” from the wearable action camera company, who’s seen its shares take a beating as sales fall off an unforgiving cliff.

So why is AMBA stock on such a roll recently? Well, there are a few reasons.

The AMBA Stock Short Squeeze

As of mid-May, there were over 10 million Ambarella shares sold short, or about one-third of AMBA’s total float. Since Ambarella’s stock price soared immediately after its earnings announcement last week, many short sellers were forced to buy AMBA stock, “covering” their short position and returning the borrowed shares to their original owner.

Since the average number of Ambarella shares traded was sitting somewhere around a million a day, the days-to-cover ratio — which measures the number of days it would typically take for all shorts to cover their positions — was sitting around 10 at last check. Today’s AMBA stock rally is still likely in some part being nurtured by demand from a short squeeze.

AMBA Nearing 200-day SMA

There’s a technical reason behind the rally as well: Ambarella broke well above its 50-day simple moving average on June 3 after its earnings blowout. The next area of resistance, technically speaking, was the 200-day SMA, which currently sits at $50.59. That’s more or less exactly where AMBA stock trades today:

AMBA-stock-chart
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If AMBA can stay above the 200-day SMA, shares could go on an extended rally.

Markets Besides GoPro

Finally, it’s nice to see Ambarella truly diversify its customer base.

Ambarella has taken aim at the drone market, and it should account for about 20% of revenue this fiscal year. While GoPro will release a drone of its own later this year, CEO Fermi Wang already notes that AMBA is “enjoying solid sales growth as well as significant design win momentum.”

Virtual reality also figures to be an area where AMBA can score some wins longer-term, and although the industry is nascent right now, I have a feeling it’ll grow to be fairly mainstream in just a few years time.

If Ambarella can establish relationships with VR companies now, in the early innings, it could be a home run for AMBA stock owners.

As of this writing, John Divine was long AMBA stock. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/amba-stock-ambarella-inc/.

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