Ambarella, Inc. (AMBA) Q2 2026 Earnings Call Transcript

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Overview

Ambarella's earnings call highlights strong revenue growth estimates, record AI revenue, and a positive outlook on edge AI and IoT applications. The Q&A section supports this with positive customer feedback and strong growth expectations in IoT and automotive sectors. Despite some vague responses on industry consolidation, the overall sentiment remains upbeat. The market cap suggests a moderate reaction, leading to a positive stock price movement prediction.

Key Financial Performance

Revenue $95.5 million, up 49.9% year-over-year. The increase was driven by strong momentum in edge AI applications, particularly in portable video and IoT markets.

Non-GAAP Gross Margin 60.5%, at the low end of the guidance range due to product mix.

Non-GAAP Operating Expense $53.4 million, below the midpoint of the guidance range due to lower engineering-related costs associated with the timing of product development.

Non-GAAP Net Profit $6.4 million or $0.15 per diluted share. This was supported by increased revenue and higher interest income.

Cash and Marketable Securities $261.2 million, up $41.4 million year-over-year, primarily due to operating cash flow from increased revenue.

Operating Cash Inflow $5.5 million, driven by increased revenue.

Free Cash Flow $1.4 million, after accounting for capital expenditures of $4.1 million.

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Operating Highlights

5-nanometer AI SoCs: Strong demand in both existing and emerging edge AI markets, driving higher average selling prices.

N1-655 SoC: First win in edge AI infrastructure, showcasing multimodal intelligence and natural language search capabilities.

CV3-AD family: Advanced 5-nanometer central domain controller for L2+ to L4 automotive applications.

CV5 AI SoC: Used in Insta360's Antigravity A1 drone, enabling 8K 360-degree video recording and AI features.

CV72 AI SoC: Integrated into Samsara's AI Multicam platform for commercial fleet telematics.

CV22FS: Used in Audi's e-mirror functions and BAIC Stelato S9's rearview electronic mirror.

H32 SoCs: Used in U.S. smart home products for multisensory AI applications.

S6L SoC: Integrated into Netatmo's Indoor Camera Advance in the European market.

Portable video market: Rising demand for action cameras, panorama cameras, and body-worn cameras.

Robotic aerial drones: High-volume shipments expected by fiscal year-end, with applications in partially autonomous drones.

Edge AI infrastructure: Expanding with N1-655 SoC, targeting compact on-premises network AI clients.

Automotive autonomy market: Active bidding on OEM projects with CV3-AD family for advanced applications.

Enterprise security market: Honeywell launched 50 Series cameras in India, leveraging CV25 SoCs.

Smart home market: Growth in AI-integrated products like nursery and garage devices.

Revenue growth: Q2 revenue of $95.5M, up 11% sequentially and 49.9% year-over-year. Fiscal 2026 revenue guidance increased to $379M at midpoint.

Gross margin: Non-GAAP gross margin at 60.5%, impacted by product mix.

Cash and marketable securities: Increased to $261.2M, driven by operating cash flow and capital investments.

Inventory management: Days of inventory decreased from 98 to 85 days.

Edge AI focus: Exclusively targeting edge AI market with rapid innovation and expanding applications.

Customer engagement: Key wins in portable video, drones, automotive, and smart home markets.

Geographic expansion: India and European markets showing growth in enterprise security and smart home sectors.

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Risk or Challenges

Automotive Autonomy Market: Lower frequency of award decisions, OEM program delays, and longer time to revenue are causing slower progress in this market compared to other edge AI applications.

Product Mix Impact on Margins: Non-GAAP gross margin for fiscal Q2 was at the low end of guidance due to product mix, indicating potential challenges in maintaining profitability.

Customer Concentration Risk: WT Microelectronics, a logistics company, represented 71% of revenue for the second quarter, indicating a high dependency on a single partner.

R&D and Product Development Costs: Increased costs associated with new product development are expected to drive higher operating expenses in the upcoming quarter.

Supply Chain and Inventory Management: Receivables days sales outstanding increased from 31 to 40 days, and days of inventory decreased from 98 to 85 days, reflecting potential challenges in supply chain and inventory management.

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Guidance & Outlook

Revenue Growth: The company increased its fiscal 2026 revenue growth estimate to a range of 31% to 35%, approximately $379 million at the midpoint, driven by strong order book and expectations for increased total unit shipments and average selling price (ASP).

Edge AI Applications: The breadth of edge AI applications is expanding, with strong demand for 5-nanometer AI SoCs in existing and emerging markets such as portable video, robotic aerial drones, and edge infrastructure. High-volume shipments into the robotics market are expected by the end of fiscal 2026.

Automotive Autonomy Market: The company is actively bidding on OEM projects with its CV3-AD family of advanced 5-nanometer central domain controllers for L2+ to L4 applications. However, slower award decisions and program delays are expected to impact the timeline for revenue realization.

Revenue Guidance for Q3 FY 2026: Revenue is forecasted in the range of $100 million to $108 million, with a midpoint of $104 million. Automotive business is expected to grow mid- to high single digits, and IoT business is projected to grow in the mid-teens.

Gross Margin Guidance for Q3 FY 2026: Non-GAAP gross margin is expected to be in the range of 60% to 61.5%.

Operating Expenses for Q3 FY 2026: Non-GAAP operating expenses are projected to be in the range of $54 million to $57 million, driven by new product development costs.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Are you thinking about IoT differently now, and could there be a pivot in your business to focus more on IoT versus automotive?

A:The company is continuing to focus on both Level 2+ and Level 4 autonomous driving while also making significant progress in the edge AI market, including IoT. The hardware architecture for IoT and autonomous driving is identical, allowing for strong operational leverage. While IoT has been a strong contributor to income, the company believes autonomous driving will drive long-term strength. Resources will be allocated to both areas to capture market share.

Q:Would you expect auto to outgrow IoT next year, or will IoT continue to outperform?

A:IoT is expected to continue its strong contribution to income in the foreseeable future. Automotive growth is anticipated to outperform IoT in the 2027-2028 timeframe when major design wins, such as VWK 2.0, ramp up.

Q:Is there a trend of multiple companies entering the robotic aerial drone market, and are there commercial applications like deliveries?

A:Yes, there is a market trend with many companies focusing on drone applications. Autonomous drones are becoming popular, enabling various applications. The company is engaged in multiple drone design wins and sees this as consistent with the broader robotics trend.

Q:Is the company still on track to move to 2-nanometer process technology?

A:Yes, the company is working on the 2-nanometer project with its foundry partners and remains on track to take customers to production in early 2027.

Q:Why does the Q3 guidance imply a seasonally down Q4 despite progress in edge AI?

A:The seasonality in Q3 and Q4 is consistent with previous years and is influenced by consumer cycles. This explains the seasonality reflected in the guidance.

Q:How does Ambarella view the growth of the non-security camera portion of the IoT business?

A:The non-security camera portion of the IoT business is expected to grow faster than the security camera segment. New applications like drones, robots, portable video, and edge infrastructure are driving this growth.

Q:What role does the company expect industry consolidation to play, and what is its strategy if it remains independent?

A:The company did not comment on industry consolidation rumors but emphasized its leadership in edge AI with 36 million units shipped. It believes its focus on edge AI positions it well in the market.

Q:What is the sustainability of growth drivers in IoT and automotive through 2026?

A:IoT is growing significantly due to customer product ramps, and automotive growth is expected to continue with efforts to secure design wins in Level 2+ and Level 3 autonomous driving. Both segments are expected to maintain growth trends.

Q:How does the company monitor for potential demand pull-ins related to the tariff environment?

A:The company reviews inventory monthly with customers and distributors to monitor for irregularities. It has not observed any meaningful inventory buildup related to geopolitical concerns.

Q:What is the customer response to the Cooper development platform?

A:The response has been very positive. The platform allows customers to develop products once and use them across multiple chips. It also enables customers to work with the company's SDK, model garden, and compiler, making it a powerful tool for product development.

Q:Should we expect non-GAAP OpEx to grow at around 10% annually, or will it be higher?

A:Non-GAAP OpEx growth is expected to be slightly higher than 10%, likely in the 12% range for the full year.

Q:What is the outlook for L2+ adoption rates in automotive, and are there any changes in customer views?

A:L2+ adoption rates are focusing on safety and cost optimization. OEMs are prioritizing lower-end Level 2+ features. The company sees opportunities in low-end Level 2+ and ADAS applications.

Q:How is the year-over-year revenue growth split between units and ASP?

A:The year-over-year revenue growth is roughly 50% from unit growth and 50% from ASP increases.

Q:What is the split between security and non-security applications in the IoT market, and which non-security applications are growing fastest?

A:Portable video is the fastest-growing non-security application, driven by products like sports cameras and panorama cameras. Security applications still represent a significant portion of the IoT market.

Q:Does the company have sufficient field application engineers to support IoT growth?

A:The unified hardware and software platform allows field engineers to support multiple applications efficiently. The company is adding field engineers as part of its growth plan.

Q:Is the strength in portable video products driven by a single customer or multiple customers?

A:The strength is driven by multiple customers, with Insta360 being the largest contributor due to its switch to the CV5-based solution. The company continues to engage with multiple portable video players.

Q:Does the guidance assume business as usual with Insta360 despite their ongoing lawsuit?

A:Yes, the guidance is based on purchase orders received from customers, and the company does not make judgments on the outcome of lawsuits.

Q:What does the pipeline for edge infrastructure look like, and what are the potential applications?

A:The company is engaging with multiple customers for edge infrastructure design wins. Potential applications include appliances that aggregate multiple edge endpoints and apply advanced AI models, such as large language models.

Q:What is the consumer versus enterprise split in portable video applications?

A:Portable video applications are more weighted towards the consumer side, though some markets like body-worn cameras are heavily enterprise-driven.

Q:Review of Unclear Management Responses

A:The company avoided directly addressing rumors about industry consolidation and its potential role in it, stating only that it would not comment on such rumors. Additionally, while discussing the sustainability of growth drivers, the company provided general statements without specific details on the trajectory of IoT and automotive growth through 2026.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

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The company shows strong revenue growth potential and optimistic guidance, particularly in edge AI and IoT markets. Despite slower automotive project timelines, high demand in drones and wearable cameras, along with a strategic focus on AI and robotics, indicate strong future prospects. While management avoided specifics, the overall sentiment is positive, with growth opportunities outweighing uncertainties. The market cap suggests moderate volatility, supporting a positive stock reaction.

Ambarella, Inc. (AMBA) Q2 2026 Earnings Call Transcript

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