Despite China Overhang, Morgan Stanley Remains An Ambarella Bull

Ambarella Inc AMBA reported Tuesday after the close with a sharp drop in first quarter non-GAAP earnings per share and a 11.2-percent revenue decline. 

The results, however, exceeded estimates. The camera chipmaker issued below-consensus revenue guidance for the second quarter. 

The Analyst

Unfazed by downbeat guidance, Morgan Stanley analyst Joseph Moore maintained an Overweight rating on Ambarella and lowered the price target from $65 to $58.

The Thesis

Depressed conditions in consumer categories are likely to persist all year and dent Ambarella's gross margin mix, and in turn the company's earnings, Moore said in a Wednesday note.

Notwithstanding the weakness, the analyst said he's upbeat on computer vision products, which he projects will ramp early next year.

Computer vision is the processing of video images to extract information, and the technology is key for growth drivers in the semiconductor, consumer and industrial internet of things sectors, Moore said. 

Revenue opportunities in autos and surveillance should benefit Ambarella, the analyst said.

If China-related trade disruption materializes, it could affect Ambarella — particularly the company's surveillance camera chip segment, Moore said. Ambarella has roughly 20-percent revenue exposure to China that's split between HIKvision and Dahua, Moore said. 

" ... But we remain convinced that if the company can demonstrate advanced driver assistance systems and autonomous capability, strategic value will jump." 

The Price Action

Ambarella shares were plunging 13.4 percent to $42.78 at the time of publication Wednesday. 

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Photo courtesy of Ambarella.