Ambarella (NASDAQ:AMBA) investors have been in a celebratory mood since the company posted better-than-expected fourth-quarter results earlier this month. But the market has chosen to conveniently overlook the hard facts that clearly indicate that the chipmaker's business is on the wane, as well as the absence of any concrete catalysts to guarantee a turnaround.

Bulls might argue that Ambarella's new chips will help it attack lucrative opportunities such as self-driving cars, drones, and other artificial intelligence (AI) applications. However, Ambarella won't be getting there easily because of the presence of well-heeled rivals that have already made a mark in these emerging areas. Let's see why Ambarella's post-earnings rally might not be sustainable.

A bear representing a stock crash.

Image source: Getty Images.

No hope of a turnaround

Round out 2017, Ambarella's top line was down close to 20% year over year, while its GAAP net income was almost wiped out. But investors were excited about the fact that the chipmaker's revenue of $70.6 million was topped the $70.3 million consensus estimate.

Additionally, the company's adjusted earnings were cut in half as compared to the prior-year period, while guidance indicates that the decline will only continue going forward. Specifically, Ambarella expects its top line to shrink 10% to 15% year over year during the current quarter.

GoPro is the primary culprit behind this weakness, and it's highlighting Ambarella's failure to attract new business. Sales to the action-camera maker fell 56% year over year during the fourth quarter to $13.3 million, accounting for almost 19% of the total top line. GoPro is still a substantial part of Ambarella's business -- an ongoing red flag since the chipmaker is failing to gain traction in other areas.

To illustrate, Ambarella's non-GoPro business grew 9.7% in the latest fiscal year, while total revenue fell 4.8% to $295.4 million. And while the company hasn't done enough to counter the massive decline in sales to GoPro, the latter is fighting a tough battle of its own and has been consciously reducing its reliance on Ambarella by diversifying its supply chain.

In fact, Ambarella management didn't pinpoint the progress it has made with the non-GoPro business during the fourth quarter, simply stating that it saw "solid year-over-year growth" on this front. However, the company expects the non-GoPro business to drop 12% year over year during the current quarter -- nowhere near solid.

So what are investors excited about?

Investors are pinning their hopes on Ambarella's computer vision chips that were unveiled at the Consumer Electronics Show in Las Vegas earlier this year. Management is betting big on the CV1 and CV22 chip families, and the hope they can help the company tap into lucrative markets like self-driving cars, AI-enabled drones, and next-generation security cameras.

What's more, Ambarella CEO Fermi Wang drummed up more hype around these new chips over the latest conference call. Wang claimed that more than 40 automotive companies and Tier 1 component suppliers met with the chipmaker after it showcased its Embedded Vehicle Autonomy platform that's powered by multiple cameras equipped with CV1 chips.

This platform will help self-driving vehicles detect objects in real time without any prior training, so it can play a role in powering advanced driver assistance systems (ADAS) that's crucial to the deployment of autonomous cars. But Ambarella investors shouldn't get excited just yet -- this is a very crowded space, and the chipmaker arrived late to the party.

Key players in this space have already made a lot of progress. Intel, for instance, has captured 90% of the ADAS market after acquiring Mobileye, a developer of vision-based ADAS systems, last year.

Intel and Mobileye are busy pushing the envelope in the ADAS market by enhancing safety features and making their architecture more flexible to attract more partners. Additionally, Mobileye and automotive component supplier Delphi are working on a self-driving platform that could hit the market by next year.

Early interest in Ambarella's new chips shouldn't be considered a sure thing, and it remains to be seen how many customers actually sign up to use the company's platform. With that in mind, investors should be cautious and consider the big picture before taking management's words at face value.

Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool recommends Intel. The Motley Fool has a disclosure policy.