Ambarella, Inc. (Nasdaq: AMBA) Q2 2026 Earnings Call | 08/29/2025

Ambarella, Inc. reported robust Q2 fiscal 2026 results, driven by strong demand for its edge AI system-on-chip (SoC) solutions. The company, focused on edge AI applications, highlighted growth in IoT, automotive, and emerging markets like portable video, robotic aerial drones, and AI infrastructure.

Financial Highlights (Q2 FY2026, ending July 31, 2025)

• Revenue: $95.5 million, exceeding guidance ($86–$94 million), up 11.2% sequentially and 49.9% year-over-year. IoT (75% of revenue) grew in the mid-teens, led by portable video, while automotive grew in mid-single digits.

• Non-GAAP Gross Margin: 60.5%, at the low end of guidance (60.5%–66%) due to product mix.

• Non-GAAP Operating Expenses: $53.4 million, below guidance ($52.5–$55.5 million), due to lower engineering costs.

• Non-GAAP Net Profit: $6.4 million, or $0.15 per diluted share.

• Cash and Marketable Securities: $261.2 million, up $1.8 million sequentially and $41.4 million year-over-year.

• Operating Cash Flow: $5.5 million; free cash flow was $1.4 million after $4.1 million in capital expenditures.

• Receivables DSO: Increased to 40 days from 31 days; inventory days decreased to 85 from 98.

• Key Customer: WT Microelectronics (fulfillment partner) accounted for 71% of revenue.

• Q3 FY2026 Outlook: Revenue expected at $100–$108 million (midpoint $104 million), with IoT up mid-teens and automotive up mid-to-high single digits. Non-GAAP gross margin expected at 60%–61.5%, operating expenses at $54–$57 million.

• FY2026 Guidance: Revenue growth raised to 31%–35% (~$379 million at midpoint), up from 19%–25% (~$348 million), driven by strong unit volume and higher average selling prices (ASPs). Non-GAAP OpEx growth expected at ~12% annually.

Business Highlights

• Edge AI Leadership: Shipped over 36 million AI processors, with edge AI expected to account for ~80% of FY2026 revenue.

• Market Expansion:

  • Portable Video: Strong growth in action, panorama, and body-worn cameras, with Insta360’s 8K 360-degree drone (using CV5 SoC) launching in January 2026.

  • Robotic Aerial Drones: High-volume shipments expected by FY2026 end, targeting partially autonomous applications.

  • AI Infrastructure: First win with N1655 SoC for a compact on-premises AI appliance with multi-modal intelligence and natural language search, driven by power efficiency and low cost.

• Automotive:

  • Growth in ADAS and telematics with wins like Sensara’s AI multi-cam platform (CV72 SoC), Audi’s E5 e-mirror (CV22FS), BAIC Steleto ACE9 rear-view e-mirror (CV22FS), and a Chinese OEM’s L2 front ADAS (CV22 SoC).

  • CB380 family targets L2+ to L4 autonomy, but longer lead times and OEM delays make other AI markets grow faster.

• Enterprise Security: Honeywell India launched 3MP and 5MP cameras using CV25 SoCs.

• Smart Home: U.S. customer launched nursery and garage devices with H32 SoCs; Natamo launched an indoor camera with H6L SoC in Europe.

• Technology Advantage: Unified hardware/software platform (Cooper) simplifies customer development across chips, enhancing scalability. Investments in 5nm and 2nm SoCs support higher ASPs and future growth.

• Customer Engagement: Strong design win momentum, particularly with Insta360 (70% export shipments) and new AI infrastructure customers.

Analyst Q&A Highlights

• IoT vs. Automotive Growth: IoT (especially portable video) is outpacing automotive due to shorter design cycles and broader applications. Automotive growth expected to accelerate in 2027–2028 with major L2+/L3 OEM wins.

• Robotic Drones: Emerging trend with commercial and consumer applications (e.g., Insta360’s drone). Energy-efficient SoCs are critical for battery-powered devices.

• Guidance Conservatism: Q3/Q4 seasonality aligns with consumer cycles, but strong order book and ASP/unit growth support raised FY2026 guidance.

• Non-Security IoT Growth: Portable video and robotics growing faster than security, with potential to surpass security segment in the future.

• M&A Speculation: No comment on rumors; focus remains on edge AI leadership and market share growth.

• Inventory Management: Regular customer and distributor checks show no significant inventory buildup, ensuring demand sustainability.

• Cooper Platform Feedback: Positive customer response for enabling easy chip transitions, neural network compilation, and SDK integration.

• ADAS Trends: OEMs prioritize cost and safety, focusing on lower-end L2+ features, with Ambarella seeing opportunities in high-resolution ADAS applications.

• AI Infrastructure Pipeline: Multiple engagements with new/existing customers; market SAM estimated at $125 million in FY2026, potentially reaching $500 million in five years.

• Portable Video Mix: Weighted toward consumer (e.g., action cameras) but includes enterprise applications like body-worn cameras.

Outlook

Ambarella is capitalizing on the expanding edge AI market, with strong growth in IoT (portable video, robotics) and steady automotive progress. The company’s focus on high-ASP 5nm/2nm SoCs, unified platform, and diverse applications positions it for sustained growth in FY2026 and beyond.