Ambarella (AMBA 2.14%) is known for making computer vision (CV) chips that go inside internet-enabled security cameras and vehicles, so it is not surprising to see the company become an investor favorite thanks to the fast-growing nature of its end markets. Share prices of the chipmaker have more than doubled in the past year, giving it a market capitalization of around $3.8 billion.

But don't be disappointed if you've missed this terrific rally in Ambarella stock so far. This mid-cap stock is showing signs of becoming a large-cap company in the long run. Let's see why that may be the case.

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Ambarella has switched into a higher gear

Ambarella may have delivered impressive stock price growth over the past year, but its financial growth hasn't kept pace. The chipmaker has been in a slump since the middle of 2017. Its reliance on GoPro for a nice chunk of its revenue backfired, and it failed to grow its non-GoPro business thanks to stiff competition.

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However, things have started looking up for Ambarella since the end of 2020, and its recently released Q1 results indicate that it has switched into a higher gear. Ambarella recorded 28% year-over-year revenue growth last quarter to $70.1 million, while non-GAAP earnings jumped to $0.23 per share from just $0.04 per share in the prior-year period. Wall Street was expecting Ambarella to register earnings of $0.17 per share on $69.5 million in revenue.

Man pointing up toward a red line sloping upward.

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Ambarella's guidance also trumped expectations. It expects Q2 revenue between $74 million and $77 million, which is higher than the $73.6 million consensus estimate. That points toward a 47% year-over-year increase at the lower end of the range. However, it wouldn't be surprising to see Ambarella exceed expectations, as the guidance takes into account the worst-case supply chain scenario caused by the global chip shortage. CEO Fermi Wang pointed this out on the June earnings conference call:

Supply chain challenges remain significant, but our execution is strong, and our guidance assumes the worst of the supply chain challenge from the Texas freeze will be filled in Q2 and gradually improve as we progress through the second half. Capacity is tight, and lead times for certain substrates remain extended.

It is impressive to see that Ambarella expects revenue from key product lines to increase substantially this year despite the supply challenges. For instance, Ambarella's automotive revenue could double in fiscal 2022, and account for 15% to 20% of its overall top line. The company is witnessing additional revenue opportunities in the security camera market, where it is recording market share gains and bringing new customers on board.

The good news is that these markets are likely to drive multi-year growth for Ambarella, as the chipmaker is just scratching the surface of huge revenue opportunities.

Ambarella is set up for long-term growth

Ambarella expects the automotive and security camera end markets to grow at a terrific pace in the long run.

In automotive, Ambarella anticipates that its serviceable market could grow from $2.2 billion in 2021 to $5 billion by 2025. The company is on track to win big from this growth, as it is scoring automotive design wins at a nice pace. Ambarella's computer vision chips have been selected by three automotive players, including Great Wall Motors of China, reportedly one of the largest car makers in the country. Ambarella has a wide portfolio of customers in the automotive space, including the likes of Mercedes-Benz, Toyota, Nissan, Honda, and others.

Meanwhile, the security camera market, which is expected to account for 60% of Ambarella's total revenue this year, also presents a terrific avenue for growth. The company estimates that there were 900 million security cameras installed across the globe last year, with around 250 million of those based on older-generation analog technology. Nearly all the remaining cameras are based on second-generation networking technology.

Now third-generation computer vision-based cameras are gaining traction. Ambarella points out that these security cameras have a replacement cycle between four and six years, and the processors used in the third-generation security cameras are expected to command twice the average selling prices of second-generation offerings. All of this indicates that Ambarella's security camera business is built for long-term growth.

Given all these tailwinds, it is not surprising to see why analysts expect Ambarella's earnings to increase at a compound annual growth rate (CAGR) of over 77% for the next five years. As such, it is a top growth stock to buy right now -- especially considering that it has a solid balance sheet, with just $11 million in debt and $435 million in cash. This should come in handy, allowing Ambarella to invest in research and development or make acquisitions, and ensuring that it keeps gaining market share in the lucrative niches it operates in.