Oppenheimer: For Ambarella, The Bear Thesis No Longer Applies

In the past one- and two-year periods, Ambarella Inc AMBA underperformed most major indices, but this may change in 2018, according to one Wall Street analyst.

The Analyst

Oppenheimer's Andrew Uerkwitz upgraded Ambarella's stock rating from Perform to Outperform with a new $70 price target.

The Thesis

The bearish case for avoiding Ambarella's stock over the past two years was straightforward, Uerkwitz said in the upgrade note. (See the analyst's track record here.)

The company was over-reliant on two main customers, GoPro Inc GPRO and China's DJI, he said.

The customer concentration risk resulted in earnings per share declines as the action camera market intensified immensely, Uerkwtiz said. 

Today these risks are "behind investors," especially given Ambarella's shift away from action camera and drone components toward a computer vision-based company, Uerkwitz said.

Ambarella's opportunity in CV spans from basic object recognition to level five self-driving vehicles, he said. The company is merely in the beginning stages of a broad CV portfolio that will start to generate a mid-single digit revenue contribution by fiscal 2020, the analyst said. 

But beyond CV, the demand for Ambarella's core dedicated video and image processing solutions remains "intact and robust," Uerkwitz said. The largest market, security cameras, remains strong and the company is unlikely to lose any market share, while expectations within the more volatile segments like drones and cameras have now been "adequately reset," he said. 

"One of our primary focuses for 2018 will be in computer vision," Uerkwitz said. "And we see AMBA as the best pure play on this theme."

Price Action

Shares of Ambarella were up 5.69 percent at $65.87 at the time of publication. 

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