Ambarella stock climbs after strong Q3 earnings, edge AI revenue soars

Ambarella, Inc. saw its stock price surge nearly 14% on Wednesday, reaching $78.04, after the semiconductor company delivered third-quarter earnings that surpassed Wall Street’s expectations. The better-than-expected results, bolstered by the company’s robust growth in edge AI revenue, alleviated investor concerns about a broader slowdown in semiconductor demand.

The Santa Clara-based firm reported an adjusted profit of 11 cents per share for the quarter ending October 31, significantly outpacing the consensus forecast of 3 cents per share. Revenue also came in strong at $82.7 million, beating analysts’ estimates of $79 million. This marked a 63% year-over-year increase, showcasing the growing demand for Ambarella’s advanced AI-powered systems-on-chip (SoCs).

Edge AI leads revenue growth

Ambarella’s CEO, Fermi Wang, emphasized that edge AI applications accounted for 70% of the company’s total revenue, a record level. The company’s products are widely used in autonomous driving systems, video security, and robotics, underpinned by their ability to process high-resolution video compression and deep neural network tasks. Wang noted that this growth has been driven by increasing adoption of AI inference processors, which play a critical role in enabling intelligent perception and decision-making across industries.

Ambarella’s edge AI semiconductors have become essential for advanced driver-assistance systems (ADAS), electronic mirrors, driver monitoring systems, and autonomous robotics. Wang expressed optimism about the company’s momentum in the Internet of Things (IoT) and automotive sectors, projecting sustained growth through fiscal 2025 and 2026.

Guidance underscores optimism

For the fourth quarter of fiscal 2025, Ambarella issued a revenue forecast of $76 million to $80 million, exceeding analysts’ expectations of $73.5 million. Non-GAAP gross margins are anticipated to range between 61.5% and 63.0%, supported by continued strength in higher-priced AI chips. The company also maintained stable financials, with $226.5 million in cash and equivalents at the quarter’s end.

Wang attributed the company’s ability to report 30% sequential revenue growth to the launch of customer products powered by its premium AI chips. This recovery follows a challenging period for the semiconductor industry, which has faced weakening demand and macroeconomic pressures.

Financial performance and expert analysis

Despite a GAAP net loss of $24.1 million for Q3, the company’s non-GAAP figures painted a brighter picture. Ambarella posted a non-GAAP net income of $4.5 million, or 11 cents per share, reversing a loss of $11.2 million in the same quarter last year. Analysts highlighted that this turnaround reflects the company’s success in capitalizing on edge AI trends and diversifying its revenue streams.

Ambarella’s gross margins, a key profitability indicator, also improved slightly. The non-GAAP gross margin stood at 62.6%, unchanged from a year earlier. Industry experts believe the company’s focus on AI-driven technologies positions it well to capture long-term opportunities in the semiconductor market.

Reshaping semiconductor outlook

The latest results mark a turning point for Ambarella, whose stock has rallied 30% over the past three months. The semiconductor sector, plagued by concerns of a cyclical downturn, has seen mixed performance, but Ambarella’s focus on high-margin AI products appears to be offsetting broader headwinds.

With 15 consecutive fiscal years of positive free cash flow, Ambarella has demonstrated resilience amid industry challenges. Analysts predict that as demand for edge AI applications continues to rise, the company will remain a key player in powering next-generation technologies.