Last year, the semiconductor industry featured many winners, most of which were well-known organizations like Advanced Micro Devices (NASDAQ:AMD), Nvidia (NASDAQ:NVDA) and Qualcomm (NASDAQ:QCOM). But a name that quietly made waves as well was Ambarella (NASDAQ:AMBA). Gaining nearly 77% in 2019, AMBA stock delighted shareholders, but can it do the same this year? The shares’ outlook is more uncertain than that of other semi names.
In my opinion, AMBA stock is a classic case of a company with potential that’s bogged down by nearer-term challenges. And those challenges stem from historical woes that have clouded its fiscal picture. According to Stockrover.com’s analysis of Ambarella, its equity ranks low because of its broadly declining growth trend, along with middling financial stability metrics.
At the same time, the technical momentum of AMBA stock is conspicuously robust. The latter phenomenon is not difficult to explain.
Specializing in sensor technologies for artificial intelligence platforms, the company offers solutions for the automotive, security, consumer and robotics industries. As societies worldwide become increasingly digitalized, Ambarella is poised to indefinitely deliver relevant applications.
But will the company’s positives outweigh the headwinds clouding AMBA stock? They just might, simply because of the increasing prominence of sensor technologies.
Auto Sensors Highlight the Key Catalyst of AMBA Stock
As an automotive enthusiast, I’ve avoided connected cars in favor of establishing better connections with the driving experience. People who drive cars with manual transmissions know that they allow drivers to be more attuned to the vehicle.
But nowadays, driving stick means driving a sports car, which typically features limited side-view visibility. Looking over your shoulder doesn’t always help if you have huge B-pillars – such as in the Nissan 350Z/370Z – blocking most of your view.
When I switched to a modern car last year, though, I experienced a remarkable difference. With blind-spot detection mirrors, I can immediately recognize whether other vehicles are around me. It’s saved me from several potential accidents, especially in high traffic zones where drivers dart in and out of lanes.
However, as useful as my connected car is, it simply tells me that another driver is in my blind spot. Where Ambarella is making a critical difference is in smart electronic mirrors. Rather than just letting drivers know if someone is nearby or not, Ambarella’s sensor technologies calculates other cars’ distances and velocities.
As a result, I know when it’s truly safe to cross over into the other lane.
Especially important for AMBA stock, contemporary safety technologies meaningfully lower the number of automotive accidents. According to a 2017 report by the Associated Press, automotive safety systems, including blind-spot detectors and lane-departure warnings, have noticeably reduced the likelihood of traffic incidents when they’re used. Most critically, these safety features have cut the fatal crash rate of vehicles that use them by 86%.
Now, this figure is likely inflated due to the relatively small data size. Still, imagine what Ambarella’s smart sensors can do, and you will further appreciate the potential of AMBA stock.
Beware the Risks
Although Ambarella has relevant solutions that will become increasingly vital to connected ecosystems, investors must realize that the company is fiscally vulnerable.
For many, the biggest negative of AMBA is its sickly growth trend. Ambarella’s year-over-year growth was impressive in its most recently earnings report. But the reality is that its 12-month revenue is trending under last year’s haul of $227.8 million. Furthermore, Ambarella’s annual revenue peaked at $316.4 million…back in fiscal 2016.
Moreover, its revenue contraction has hurt its net income, which is negative. Of course, shareholders eventually want to see their tech firms translate their innovations into profitability. The risk is that it might not happen for AMBA.
Additionally, consumers may not be quite ready for enhanced or smart cars. According to Morning Consult, a majority of people have little to no interest in buying connected smart cars. That’s not necessarily a deal-killer for AMBA stock. However, since Ambarella’s automotive technologies are based on smart solutions and connectivity, it does raise questions about the shares.
Ultimately, though, I believe the outlook for Ambarella stock is slightly favorable. The company appears stable enough to survive for the foreseeable future. And that puts it in prime position to benefit from its practical, even life-saving solutions.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.