Ambarella AMBA shares have plunged 11.5% year to date against the Zacks Computer and Technology Sector and S&P 500 index’s growth of 23.1% and 20.2%, respectively.

Ambarella stock has also underperformed the Zacks Electronics - Semiconductors industry’s return of 30.6% in the same time frame. Ambarella is grappling with several headwinds, including the slowdown of electric vehicle (EV) market growth.

Per a Forbes report, the EV market is expected to grow at an abysmal 16% in 2024 compared with 64% in 2023. Ambarella supplies several of its products for the EV category. However, AMBA is receiving a steady flow of contracts from the broader automotive market.

Recently, Lotus integrated Ambarella Oculii AI 4D imaging radar technology in its Eletre electric hyper-SUV and 2024 Lotus Emeya. The technology features highway and urban navigation on autopilot and automatic emergency braking systems. Both vehicles will benefit from Oculii’s ultra-fine angular resolution produced using six transmitters and received by eight antennas.

Ambarella YTD Performance

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AMBA Expands Its Presence in the Auto Market

Nearly all automakers are now in various stages of developing self-driving cars. This has been creating a huge demand for camera-based SoCs as well as computer vision technology. Ambarella already has deep technical knowledge in camera-based SoCs and is continuously enhancing its computer vision capabilities. Earlier in 2024, Kodiak Robotics selected Ambarella’s CV3-AD685 AI domain control system-on-chip to improve their next-generation autonomous vehicles.

So far this year, Ambarella has also expanded in the broader automotive market through multiple collaborations. AMBA partnered with Neusoft Reach to mutually benefit from each other’s automotive software, autonomous driving technology, electrification and AI system-on-chip products. AMBA also partnered with Leapmotor to develop top tier intelligent driving experience for the global new energy vehicles. AMBA also collaborated with SANY Group to develop advanced automated driving solutions.

Moreover, Ambarella’s other products, including CVFlow architecture-based AI inference processors like CV3, CV2, CV5, CV25 and CV22 SoCs, are attracting positive consumer feedback. The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $266.6 million, indicating year-over-year growth of 17.7%. Given these favorable tailwinds, the outlook remains promising.

AMBA Suffers From Competitive Challenges

Ambarella was going through a phase of customer concentration risk. It was heavily dependent on GoPro for revenues. In a bid to decrease its reliance on GoPro, Ambarella forayed beyond it and has also contributed to products like dash cams by Garmin GRMN.

While Ambarella is getting a lift from the use of its SoCs inside Garmin’s Dashcam 46, 56, 66 and Dashcam Mini, AMBA faces stiff competition from NVIDIA NVDA in the AI and IoT marketplace and Qualcomm QCOM in the Automotive market.

Ambarella’s CV2 is in direct competition with NVIDIA’s Xavier chips. AMBA’s automotive chips also compete with Qualcomm’s Snapdragon 602 Automotive Platform.

Ambarella’s challenge lies in differentiating itself through innovation in computer vision and lower-power AI processing, but it lacks the scale and ecosystem leverage that both NVIDIA and Qualcomm possess. While its focus on niche markets like video processing and security cameras is a strength, competing with industry giants in broader AI applications remains an uphill battle.

Here's What Investors Should Do With AMBA Stock

Though the demand for its computer vision products is growing steadily, Ambarella is facing a mixed bag of challenges from the slowdown in EV space and stiff competition. The Zacks Value score of F suggests that AMBA’s valuation is stretched at present. So, it is prudent for investors to wait for a better entry point to accumulate shares of this Zacks Rank #3 (Hold) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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