Ambarella (AMBA 5.83%) stock soared nearly 19% Wednesday morning after reporting a strong earnings beat last night. The stock has since given back about half its gains, but as of 11:20 a.m. ET is still up 7.7%.
Analysts had forecast Ambarella to earn $0.04 per share on $79 million in sales. In fact, the company reported Q3 earnings of $0.11 per share, and sales of $82.6 million. Adding to the good news, Ambarella raised guidance for Q4 sales.
Ambarella Q3 earnings reflect AI gains
Once upon a time, Ambarella was known as a maker of semiconductor chips for “action cameras” (think GoPros and similar action cams). That market seems to be going nowhere, however, and Ambarella has since pivoted to portray itself as an artificial intelligence (AI) stock, specializing in “edge AI semiconductors” and adopting the “AI envisioned” tag line for its products.
The rebranding seems to be working. Sales in fiscal Q3 2025 (Ambarella’s financial calendar runs a year ahead of the rest of us) surged 63% year over year. Profit margins seem better in AI chips as well, with Ambarella’s gross margin rising 130 basis points to 60.6% in the quarter.
On the bottom line, however, Ambarella is still losing money — AI or no AI. While pro forma profits were positive and better than expected when calculated according to generally accepted accounting principles (GAAP), Ambarella ended up losing $0.58 per share in the quarter.
Is Ambarella stock a buy?
The good news is that there’s a chance Ambarella will turn profitable in Q4.
Management raised sales guidance to a range from $76 million to $80 million, and predicted its gross margin will rise sequentially to at least 61.5% — perhaps as high as 63%. Subtract expected operating expenses of $49 million to $52 million, and Ambarella could come very close to breaking even in Q4. If everything goes right, it might even earn a profit.
Analysts aren’t expecting Ambarella to turn profitable for years, however. If the company does turn profitable next quarter, it will surprise a lot of investors — in a good way.
Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
