Ambarella Stock Eyes One-Year High On Q3 Earnings Beat: Analysts’ Price-Target Hikes Stoke Retail Excitement

Shares of Ambarella Inc. ($AMBA) jumped as much as 24% in pre-market trading on Wednesday after third-quarter earnings beat estimates and eased concerns about slowing demand for its products. 

If pre-market gains hold, the stock is set to open at its highest since June 2023, marking more than a one-year high for Amberella’s shares. 

The maker of chips used in video monitoring and driver assistance systems reported earnings of $0.11 per share, more than double the estimated $0.03.

Its revenue came in at $82.65 million beating the estimated $79.01 million and a 63% increase over the prior year. 

Revenue rose about 30% sequentially in both auto and internet-of-things (IoT) segments. 

“Company-specific factors more than offset the overall weakness in the market,” said CEO Fermi Wang during the Q3 2024 earnings call. 

He cited strong sales from its Edge AI product, which he says represents about 70% of the company's total top line.

For the fourth quarter, the company is projecting revenue of $76 million and $80 million. Gross margins are expected to be between 61.5% and 63% while operating expenses are expected to range between $49 million to $52 million. 

“With the anticipated revenue growth, we intend to drive positive operating leverage and build upon our 15 consecutive fiscal years of positive free cash flow,” said Wang.

Wall Street analysts responded positively to Ambarella's Q3 earnings, with several raising their price targets for the company. 

• Bank of America (BofA): Price target raised to $65 from $57 while maintaining an ‘Underperform’ rating.
• Morgan Stanley: Price target raised to $90 from $73 with an ‘Overweight’ rating.
• Susquehanna: Price target raised to $85 from $70 keeping a ‘Positive’ rating.
• Stifel: Price target raised to $95 from $80 keeping a ‘Buy’ rating.

While Ambarella has underperformed the market so far this year, analysts believe the latest results signal a potential turnaround after a challenging period. Ambarella shares have climbed 30% over the past three months, alleviating concerns about slowing semiconductor demand.

Ambarella Inc. Sentiment and Message Volume on Nov 27 as of 7:50 a.m. ET | Source: Stocktwits

Meanwhile, retail activity on Stocktwits soared to a year-high for the stock, with sentiment climbing further into the 'extremely bullish' zone (97/100) and message volume surging to 'extremely high' levels (97/100).

The platform saw an 850% surge in chatter and a 0.36% rise in watchers within the 24 hours leading up to the Q3 earnings release.

Broadcom Inc. ($AVGO), another semiconductor stock, is set to release its third-quarter earnings on Dec. 12. Analysts expect earnings of $1.39 per share, reflecting a 25.2% year-over-year increase, with revenue projected at $14.06 billion, up 51.3% from last year. 

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