Why Ambarella Rallied Despite Results

Ambarella’s (NASDAQ: AMBA) potential in the ADAS (autonomous driving) market is the only potentially positive catalyst for the former GoPro (NASDAQ: GPRO) parts supplier. When the stock rallied from $35 to around $43 following its third quarter report, the response may prove temporary. Bears could have unwound their bets, sending the stock higher. Short float stood at 22%.

Ambarella reported revenue falling 36% from last year. Its forecast is worse: revenue in Q4 of $51 million +/- 3% is nowhere near the consensus of $55.6 million. Management cited weakness in consumer electronic applications, plus macro challenges (probably U.S./China trade) as the reasons for the uncertainties in the short-term.

CV22 and CV2 CVflow SoCs are currently under evaluation. The end of next quarter marks the first production volume shipment. Consumer product introductions are expected in mid-next year.

In the automotive market, management experienced strong interest and design for both its human vision and computer vision solutions. CVflow SOCs have interest from Tier 1 and OEM customers, while CV2 is in the design phase with leading autonomous vehicle OEMs.

On its conference call, Ambarella cited design wins and success in China. Clearly, the tariff trade war between the U.S. and China could derail growth prospects in the region.

Avoid AMBA stock. Shorts may re-establish a short-position, betting on the stock to fall to around $30 a share.