AMBA pops on earnings but gives up early gains
2min read Ambarella delivered a solid Q3 performance, exceeding both EPS and revenue expectations. The company reported adjusted EPS of $0.11, compared to a loss of $0.28 per share in the prior year and well above the consensus estimate of $0.03. Revenue reached $82.7 million, representing a 63% year-over-year increase and beating analysts' expectations of $79 million. These results underscore strong execution amidst challenging macroeconomic conditions.
The company reported an adjusted gross margin of 62.6%, consistent with the prior year and slightly below the estimated 63.2%. Operating expenses were managed effectively, contributing to the strong EPS result. Ambarella's ongoing product ramp and design wins in both the automotive and IoT markets have improved visibility into future growth, even as challenges in the automotive funnel linger.
Ambarella's growth was driven by its leadership in AI-powered system-on-chip (SoC) technology and new product introductions in the automotive and IoT sectors. The automotive segment saw some headwinds, with the total opportunity funnel declining to $2.2 billion from $2.4 billion due to delayed or canceled Level 2+ projects. However, design wins with key automotive players like XPeng and Honda highlight the company’s strategic positioning. In IoT, new higher-priced product designs contributed to the revenue beat, showcasing Ambarella's ability to capture value in diverse end markets.
Guidance for Q4 further boosted investor confidence, with revenue expected to range between $76 million and $80 million, significantly above the $73.5 million consensus. Adjusted gross margin guidance of 61.5%-63% also aligned well with estimates. Management’s outlook for FY26 included year-over-year revenue growth, driven by continued momentum in IoT and automotive markets, despite the near-term softness in some automotive programs.
Analysts responded positively to Ambarella's results and outlook. Needham raised its price target to $100 from $90, highlighting the strong product ramps and partnerships as key drivers for FY26 growth. RBLT maintained its Buy rating and increased its target to $100, emphasizing Ambarella’s leadership in AI SoC technology and its ability to execute in a tough macro environment. However, some analysts noted the shrinking automotive funnel as a potential risk, though the retained business of $800 million was seen as a positive.
Shares of Ambarella surged 14% in Wednesday’s trading, reflecting investor optimism after the earnings and guidance beat. However, the stock has given up those gains to slide back to the $75 area. The stock has rallied 30% over the past three months, signaling improving sentiment after a challenging period. Despite weakness in the broader semiconductor market, Ambarella’s strong execution and company-specific factors have driven the stock higher, differentiating it from competitors like Diodes and Semtech, which showed more subdued reactions.
Ambarella’s second consecutive "beat and raise" quarter reinforces confidence in its long-term growth trajectory. The upcoming CV3 product ramp in 2026 is a critical driver for its automotive ambitions, while IoT continues to provide diversified revenue streams. Product demonstrations at CES in early January are expected to showcase new capabilities, potentially bolstering investor confidence further. While challenges remain, particularly in the automotive funnel, Ambarella’s leadership in AI-driven technologies positions it for sustained growth in a recovering market.
