Shares of chipmaker Ambarella (NASDAQ:AMBA) stock fell nearly 20% after it reported a down quarter and cut its sales outlook.
The company, which makes artificial intelligence ( ) vision processors, said it lost $32.2 million, 79 cents per share, on revenue of $62.1 million for the three months ending in July. It ended the quarter with $216.5 million in cash.
What spooked investors was CEO Fermi Wang writing that customers are aggressively cutting inventory and “seeing some pockets of weak end-market demand.”
Ambarella was trading at about $60 per share early this morning, with a market capitalization of $2.4 billion.
I saw an analyst on CNBC a few hours before the earnings release touting Ambarella as a big AI play because its vision sensors can identify objects in complex pictures. This is useful in security, in factories and in autonomous driving applications.
But that’s not where money is going right now. Clouds are bulking up with Nvidia (NASDAQ:NVDA) chips, and software is absorbing huge databases for new language models. But end-use cases aren’t appearing as fast as expected.
Wang said he anticipates “a return to growth in the next fiscal year,” saying the company’s research is aimed at “AI inference” workloads.
Despite the stock’s fall, it’s still not cheap. Ambarella had sales of $337 million last year, and the market cap is seven times that. The company has yet to turn a profit.
Tipranks lists 13 analysts following Ambarella, with eight telling investors to buy it and just one saying sell. That’s likely to change soon.
On Stocktwits, traders reported several analysts were downgrading the stock after earnings, with one calling the results “kind of shocking.” It isn’t surprising that retail traders are confused today since Ambarella chips often go into police body cameras.
AMBA Stock: What Happens Next?
AMBA stock will go into the “penalty box” until results turn around. The company needs more use cases outside security and cars. Don’t expect a move higher until next year.
As of this writing, Dana Blankenhorn held a LONG position in NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.