Shares of Ambarella (NASDAQ:AMBA) have fallen out of favor lately. The stock closed below $50 on Wednesday, the first time investors have seen that happen since January. Ambarella became a market darling a couple of years ago, when GoPro (NASDAQ:GPRO) wearable cameras were all the rage, but the the provider of video chip solutions held up better than GoPro on the way down as its diversification efforts helped soften the blow.

Ambarella stock may be down, but it's certainly not down for the count. Let's go over some of the ways the stock could win back investors in the coming months.

Ambarella S2 chip.

Image source: Ambarella.   

1. Sustainable revenue growth is a big deal

Ambarella seemed to be on the comeback trail a few months ago. It posted 29% top-line growth during last year's fiscal fourth quarter, its strongest showing since late 2015. Ambarella followed that up last week with a 12% uptick in this year's fiscal first quarter, but the report was marred by a weaker-than-expected outlook.

The midpoint of Ambarella's guidance range calls for just 8% in year-over-year growth, less than what Wall Street pros were forecasting. Its outlook for flattish full-year results implies actual declines on the top line for the second half of the fiscal year. Ambarella needs to prove that its numbers don't rise and fall merely as a product of release cycles for GoPro Hero action cameras. If top-line results continue to be lumpy, you can be sure the stock price will follow.

2. Diversification should spread the risk around

Ambarella is often the lone or lead provider of low-power, high-def video compression and image processing solutions for many hot products in action cameras, dashboard cams, and security surveillance equipment. Ambarella is hungry for more.

Ambarella is making a push for the drone market, and during last week's call, it pointed to robotics and factory-installed automotive gear as two areas where it sees new opportunities. Diversification is the key to avoiding the fate that struck GoPro -- its stock has surrendered more than 90% of its value since peaking shortly after its 2014 IPO.

3. Fending off the competition is critical

Ambarella commanded a market premium when it seemed to defy to commoditized nature of cyclical chip makers. It was riding high on the success of GoPro wearables and Dropcam security cameras. Ambarella's juicy margins has attracted competitors, and the last thing investors need is for this to become the next semiconductor cutthroat niche.

There are some legitimate advantages for Ambarella, here, but it's also problematic to see it disappoint with its past few quarterly results. The stock has taken a hit of at least 4.4% the day after posting quarterly results for the past four reports, making it dangerous to own over the past year. 

Analysts are generally intrigued by Ambarella's potential in computer vision products. Suji Desilva at Roth Capital also recently wrote about demand patterns stabilizing. There are clear catalysts for Ambarella to break north of $50 again, but it's going to make sure it's not jumping into crowded markets where the markups are meager. 

Rick Munarriz owns shares of Ambarella. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool has a disclosure policy.