With the inventory correction now behind it and increasing demand for its AI inference and edge products, Ambarella (AMBA, Financial) reported an impressive beat-and-raise for its Q2 FY25 earnings. The company returned to positive year-over-year revenue growth of 2.6%. Over the past several quarters, AMBA's automotive and IoT customers had been destocking inventory, leading to seven consecutive quarters of revenue declines. However, during the earnings call, the company indicated that it expects revenue in the second half of FY25 to reflect actual end-market demand as most customers have completed their rebalancing efforts.
Key highlights from the earnings report include:
- Despite macroeconomic challenges and a slowing EV market, AMBA's specific catalysts are driving growth. The company's Q3 revenue guidance of $77.0-$81.0 million exceeded expectations, representing a strong sequential growth of 24% at the midpoint.
- AMBA's new AI inference and edge products, especially its CV5 chips, are significant growth drivers. The CV5 family, currently the only new product on the market, is performing well in the automotive and IoT sectors. AMBA expects to ship over 1.0 million units this year across more than 1,000 design wins.
- Looking ahead, the CV7 family is set to enter production in late FY25, initially targeting computer vision applications in the auto and IoT markets. Ultimately, CV7 is expected to power vision-language models in data centers, representing the next growth phase. Vision-language models learn from both text and images.
- The ramp-up of new products should eventually boost AMBA's gross margin due to higher average selling prices (ASPs). In Q2, non-GAAP gross margin slipped by 130 basis points year-over-year to 63.3%. For Q3, the company forecasts a gross margin of 62.5%-64.0%.
The main takeaway is that AMBA has overcome its inventory-related challenges, setting the stage for stronger growth in the coming quarters as it launches and ramps up its new AI inference products.
