Ambarella's Inventory Rebalancing Delivers a Buying Opportunity As Demand Eases, Analysts Say While Slashing Price Targets

Ambarella, Inc AMBA clocked 2% revenue growth to $80.9 million in Q2, beating the consensus. EPS of $0.20 beat the consensus.

Keybanc analyst John Vinh maintained an Overweight and lowered the price target from $120 to $100. AMBA reported in-line 2Q results and guided 3Q lower, noting its supply tightness at Samsung at 14nm, and China COVID lockdown disruptions are improving.

However, AMBA is seeing its customers take a more cautious stance given macro concerns and is reducing inventories across its automotive and IoT segments as lead times ease. 

Conversely, CV revenues increased significantly Y/Y and remained on track to hit 45% of total revenues in FY23. Its latest gen CV5 will likely ramp in 2H. Vinh reduced estimates and price targets to reflect market multiple contractions. 

Rosenblatt analyst Kevin Cassidy maintained a Buy and lowered the price target from $125 to $110. Ambarella made it through the perfect storm of supply chain issues with an in-line report. 

Samsung foundry deliveries will likely improve, though still short of total need. Cassidy said that the underlying demand for video and computer vision-based products remains robust, and the company is executing well on its product roadmap. 

Management highlighted 12+ of the new designs won during the quarter. While various supply chain issues have lower revenue growth than expected, Cassidy continues to see the July quarter as the trough. 

Wells Fargo analyst Gary Mobley maintained an Overweight and lowered the price target from $110 to $105. To adjust for lower estimates, however, he changed the price target.

Mobley noted AMBA expected some easing from the disruptions related to China's COVID-19 mitigation efforts & related supply issues and some improvement in 2H FY23 related to China COVID & Samsung 14nm. 

AMBA has seen some customers' reluctance to hold additional inventories, which may limit revenue. AMBA remains on track for CV to be ~45% of revenue in FY23. 

Needham analyst Quinn Bolton reiterated a Buy and $110 price target. AMBA's 2Q results and 3Q guidance were mainly in line with expectations, Bolton noted. 

China lockdowns and the 14nm shortage issues have been absorbed and baked into guidance. The kitting issues due to lack of critical ICs remain the main bottleneck for customers, leading some to postpone orders.

CV5 began production during the quarter, and meaningful revenue was to pick up in 1H. He remained a buyer of weakness. 

Price Action: AMBA shares traded lower by 19.50% at $67.99 on the last check Wednesday.