Ambarella Revenue Jumps 50% in Fiscal Q2

Ambarella (AMBA -1.81%), a fabless semiconductor company known for its video and artificial intelligence (AI) system-on-chips (SoCs), reported notable growth in its Q2 FY2026 results, released on August 28, 2025. Revenue (GAAP) climbed to $95.5 million, marking a 49.9% increase over the prior-year period and surpassing both management’s guidance midpoint and consensus estimates. The company returned to non-GAAP profitability with earnings per share of $0.15, compared to a loss in the previous year. Though gross margins contracted and operating expenses grew, management raised its outlook for fiscal 2026 revenue growth to 31–35%.

Business Model and Strategic Focus

Ambarella designs advanced system-on-chip (SoC) semiconductors mainly for video processing and edge artificial intelligence. These SoCs enable AI-powered capabilities in devices including automotive cameras, driver-assistance systems, security devices, and various industrial or robotics applications. The company operates a fabless model, meaning it focuses on design and partner relationships while outsourcing manufacturing, which helps it remain agile and scale in response to demand.

A central focus for the business is leveraging its proprietary CVflow architecture to power AI applications in two key markets: automotive and Internet of Things (IoT). Success in these sectors depends on delivering high performance, low power consumption, and a strong partnership network that helps win multi-year design contracts with equipment manufacturers.

Quarterly Highlights: Rapid Growth, Margin Dynamics, and Product Milestones

The most prominent achievement for the period was a 49.9% year-over-year increase in revenue (GAAP), which exceeded management’s guidance and set a new quarterly company record. This growth was attributed to strong demand for advanced edge AI products, especially the newer 5-nanometer (5nm) AI SoCs—small, energy-efficient chips specifically designed for running AI algorithms. Management noted, “We are experiencing strong secular growth in the edge AI market, with an expanding breadth of applications driving unit demand, often with our higher priced 5nm AI SoCs.” In addition to topping revenue targets, non-GAAP net income turned positive, in contrast to a loss in the prior-year period.

Gross margins, however, declined to 60.5% (non-GAAP), down from 63.3% in Q2 FY2025. Expenses also remained elevated, largely due to research and development spending of $59.7 million (GAAP, Q2 FY2026) and significant stock-based compensation for employees. Total operating expenses (GAAP) reached $78.2 million, up $3.2 million from the prior-year quarter. While the surge in revenue helped improve profitability on a non-GAAP basis, margin pressure somewhat offset the gains from higher sales volumes.

Key company milestones included shipping over 36 million edge AI processors to date, demonstrating Ambarella's growing role as a supplier in edge AI. Product innovations centered around pushing the CVflow-based AI SoCs into a wider set of applications. The quarter also marked upcoming production shipments tied to new wins, including robotic aerial drones (expected by the end of FY2026) and emerging edge infrastructure (expected to enter production in FY2027). These advances point to diversification beyond the company's roots in video security and into fields such as robotics and infrastructure, expanding its addressable market.

Ambarella also maintained financial flexibility, ending the quarter with $261.2 million in cash, equivalents, and marketable securities, compared with $219.8 million at the end of Q2 FY2025—an 18.8% increase.

Looking Ahead: Raised Guidance and Watchpoints for Investors

For Q3 FY2026, management projects revenue in the range of $100.0 million to $108.0 million, with the midpoint, if achieved, representing another record. Gross margin on a non-GAAP basis is expected in the 60.0–61.5% range, which, while stable, remains below the prior year. Non-GAAP operating expenses are expected to rise slightly, tracking ongoing R&D investments. For the full FY2026, leadership raised its revenue growth target to 31–35%, a notable increase from the 19–25% range issued after the prior quarter. If achieved, these results would set all-time highs for both quarterly and annual revenue.

Management did not provide explicit guidance on GAAP profitability for FY2026 but signaled that, as long as revenue growth persists, continued non-GAAP profitability is likely. Investors may wish to watch for the pace of margin recovery, the timing of new product launches such as edge infrastructure and robotics platforms, and management's ability to balance rapid growth with profitability as spending remains high.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.