Ambarella Analysts See Long-Term Opportunity In Computer Vision

Video chipmaker Ambarella Inc AMBA reported Tuesday after the market close with forecast-beating fourth-quarter results, but issued disappointing guidance for the first quarter.

The Analysts

Morgan Stanley's Joseph Moore maintained an Overweight rating on Ambarella with a $52 price target.

Bank of America Merrill Lynch analyst Adam Gonzalez reiterated an Underperform rating and lifted the price target from $35 to $36.

KeyBanc Capital Markets analyst John Vinh maintained a Sector Weight rating.

Morgan Stanley: Strategic Value Should Grow

Ambarella's company-specific challenges in consumer video processing are mostly behind it, Moore said in a Wednesday note.

The decline in consumer business is likely to slow by the end of 2019 and surveillance is likely to grow longer-term, thanks to the penetration of computer vision, or CV, the analyst said. 

Morgan Stanley projects near-term weakness in China due to both trade and end demand.

Moore said he sees huge potential in CV, a video analytics technique of processing video images to extract information, particularly in driver assistance and eventually autonomous driving, as well as consumer and industrial internet of things.

"Despite the challenges to the legacy revenue streams, we think that computer vision milestones have consistently been ahead of expectations." 

Morgan Stanley raised its first-quarter EPS estimate, reflecting higher-than-expected interest income, but lowered its FY2019 estimates, citing a tougher first half.

BofA Awaits Evidence Of More Tangible Computer Vision Win

Notwithstanding the muted first-half sales growth outlook, Ambarella is confident of returning to growth in the second half due to a gradual ramp in early CV revenue, a return to growth in the non-CV autos business and reduced impact from consumer weakness, Gonzalez said in a Tuesday note. 

Looking ahead to calendar 2020, the analyst said he expects the narrative around the company to continue to shift from legacy "human vision" to future CV drivers.

That said, BofA expressed skepticism in the stock's ability to outperform until a "more tangible CV revenue/design win pipeline is established."

KeyBanc: CV Opportunity Is Still Early Days

Auto is likely to be a long-term growth driver, with Ambarella announcing multiple CV22 engagements, Vinh said in a Tuesday note. 

The analyst expects CV2/22 to generate revenue by 2021.

Ambarella estimates that security camera revenue will see a slight quarter-over-quarter decline in the first quarter, as inventory build at consumer is offset by professional, Vinh said. The consumer business is likely to decline for the next two to three years, he said. 

Vinh expects that auto revenues have bottomed out, likely growing quarter-over-quarter due to strength in OEM and Tier 1.

KeyBanc lowered its FY20 EPS and revenue estimates and introduced below-consensus FY2021 estimates.

"While we are encouraged by increasing CV design traction in security cameras and auto, we remain SW as we believe the CV opportunity is still early days," Vinh said. 

The Price Action

Ambarella shares were rallying 8.44 percent to $43.96 at the time of publication Wednesday. 

Related Links:

Oppenheimer: For Ambarella, The Bear Thesis No Longer Applies

Cowen Names 4 Top Semi Picks: AMD, Ambarella, Broadcom, Monolithic Power

Photo courtesy of Ambarella.