Ambarella Stock Is Slipping on Demand Concerns, but Analysts Remain Bullish

Ambarella expects revenue to be between $81 million and $85 million for its third quarter.


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Ambarella

shares were falling Wednesday after the chip maker said its recovery outlook will be hit by customers reducing their inventory levels.



Ambarella

(ticker: AMBA) reported its second-quarter earnings results after the closing bell on Tuesday. The company posted adjusted earnings for its second quarter that ended on July 31 of 20 cents a share, just higher than analysts estimates of 19 cents a share, according to



FactSet
.

Revenue of $80.9 million also topped Wall Street expectations of $80.2 million.

But the stock still fell 18% on Wednesday to $69.17, meaning it has tumbled 65% in.

2022. Third-quarter outlook didn’t give investors the confidence they needed.

For the third quarter,



Ambarella

expects revenue to be between $81 million and $85 million. This expectation is mostly below the Wall Street consensus of $84.6 million. The company overcame supply issues but is now facing the problem of customer demand.

“In the second quarter we absorbed the worst from both the China lockdown and the 14-nanometer shortage,” CEO Feng Ming Wang said in the company’s earnings call. “Collectively, we should see some improvement from these factors in the second half, but our recovery outlook is tempered as some customers are now reducing their inventory levels.”

Ambarella’s CFO Brian White also said in the earnings call that “we’re in a situation where customers have been experiencing the supply disruptions for quite some time, and those disruptions are beginning to abate to some extent, things are getting a little bit better. But they’re also looking ahead to some of the economic risks that could be on the horizon and the uncertainties associated with that.”

Needham analyst Quinn Bolton wrote in a research note on Wednesday that shares will likely drop in response to the company’s outlook. “However, as inventory is purged over the coming quarters, more supply will become available and leadtimes will improve,” Bolton said. He added that he would be a buyer on share weakness “as we believes Ambarella’s best days are coming.”

Bolton rates the stock as a Buy with $110 price target.

KeyBanc Capital Markets analyst John Vinh also maintained his Overweight rating on the stock but lowered his price target to $100 from $120. He said that the company “is seeing its customers take a more cautious stance given macro concerns and is reducing inventories.”

Of the 20 analysts polled on FactSet, 80% rate the stock as a Buy while 15% say it’s a hold and 5% say it’s a Sell.

Write to Angela Palumbo at angela.palumbo@dowjones.com

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