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Ambarella (AMBA) develops semiconductor solutions for video that enable high-definition and ultra-high-definition compression, image processing, and deep neural network processing worldwide. Its system-on-a-chip designs integrate HD video processing, image processing, artificial intelligence (AI) computer vision algorithms, and audio processing onto a single chip to deliver video and image quality. These solutions are used in automotive cameras such as recorders, electronic mirrors, driver assistance camera systems, and cabin monitoring systems.
Valued at a market cap of $2.43 billion, Ambarella went public in October 2012, and has since returned 875%. However, the stock also trades 74% below all-time highs, allowing investors to buy the dip and benefit from outsized gains when investor sentiment improves. Let’s see what you should expect from Ambarella’s upcoming earnings, and whether the semiconductor stock is a good buy at the current multiple.
What Does Wall Street Expect from Ambarella in Fiscal Q3?
Ambarella is slated to announce its results for fiscal Q3 of 2025 (ended in October) after the close on Tuesday, Nov. 26, and is forecast to report:
- Revenue of $79 million, up from $50.6 million last year
- Adjusted earnings of $0.04, compared to a loss of $0.28 per share last year
This suggests that Ambarella is expected to grow its revenue by 56.2% year over year in Q3, allowing it to report an adjusted profit in the October quarter. During its last earnings call, Ambarella forecast Q3 sales between $77 million and $81 million. The company guided for gross margins between 62.5% and 64%, while adjusted operating expenses were projected between $49 million and $51 million.
In fiscal Q2, Ambarella reported revenue of $63.7 million, while its adjusted losses stood at $0.13 per share. Comparatively, Wall Street called for a loss per share of $0.19 on revenue of $62.1 million.
Ambarella noted that revenue for its edge AI products touched a new high in Q2, and management expects the momentum to continue in Q3, as well. According to Ambarella, these AI products will help it build a strong foundation, after which it can branch out into advanced AI networks and take advantage of secular trends in this disruptive space.
Is AMBA Stock Undervalued Ahead of Q3 Earnings?
Ambarella is part of the semiconductor industry, which means it's vulnerable to cyclical trends. Its sales increased from $223 million in fiscal 2022 to $332 million in fiscal 2023. However, in the last 12 months, its sales have fallen by 24.2% to $220.4 million.
Analysts tracking the tech stock expect sales to rise by 17.7% to $267 million in fiscal 2025 and by 19% to $318 million in fiscal 2026. Comparatively, its losses are forecast to narrow from $0.83 per share in fiscal 2024 to $0.19 per share in 2025. In the last 12 months, Ambarella has reported a free cash outflow of $2.4 million, down from $37.6 million in fiscal 2020.
AMBA stock is priced at 7.8 times forward earnings, which is quite steep for a loss-making entity. However, its losses are driven by substantial research and development expenses totaling $216 million in the last 12 months. Investors would hope for these investments to help Ambarella gain market share and benefit from the AI megatrend.
Out of the 14 analysts covering AMBA stock, seven recommend “strong buy,” one recommends “moderate buy,” five recommend “hold,” and one recommends “moderate sell,” for an overall “moderate buy” consensus.
The tech stock's average target price is $75, indicating expected upside potential of 23.8% from current prices.
