Electric truck company Rivian Automotive (RIVN -2.35%) has been receiving a lot of love on Wall Street of late as analysts seem convinced about the company's ability to sell a truckload of vehicles beginning next year, thanks to orders from Amazon and the potential boom in the demand for electric trucks in the U.S.
Bank of America, for instance, has a $170 price target on Rivian stock, which implies a nearly 50% upside from its price as of this writing. That's impressive considering that Rivian is still largely a pre-revenue company; it has just sold a dozen of its trucks. It's the craze around electric vehicles (EVs) that has made Rivian stock a popular investment. But there's another way to buy into Rivian's growth through a company that has set the stock market on fire this year -- Ambarella (AMBA -3.21%).
Rivian could give Ambarella a nice boost
Ambarella management pointed out on the company's December earnings conference call that Rivian's R1T truck is equipped with multiple cameras, radars, and sensors. According to Ambarella CEO Fermi Wang:
The R1T's Driver+ features 11 cameras, five radars, and 12 ultrasonic sensors to deliver true hands-free driving assistance along with a full set of safety features.
The R1T's Driver+ system utilizes multiple CV2AQ CVflow automotive SoCs for its AI vision processing. Additionally, the R1T also uses Ambarella's CV22AQ CVflow automotive SoC for its surround-view camera processing and gear guard security system. The Rivian design highlights the use of Ambarella's AI vision SoCs in centralized automotive computing applications. These applications represent a major new opportunity for Ambarella moving forward.
Let's parse this. Ambarella is providing three types of chips to Rivian for the R1T electric truck. The EV uses multiple CV2AQ chips to handle video perception. Meanwhile, the CV22AQ system-on-a-chip (SoC) handles the surround view and security camera functions in the Rivian R1T, while Ambarella's B8 chip is used to transport data from the image sensors to the first two types of computer vision (CV) chips.
KeyBanc Capital Markets analyst John Vinh estimates that Ambarella is supplying chips worth at least $100 to each Rivian R1T truck. That could be a big deal for the chipmaker in the long run, as Rivian has a backlog of just over 55,000 vehicles that it plans to fill by 2023. What's more, Rivian also has an order from Amazon to build 100,000 electric delivery vans, though Morgan Stanley believes that its orders from the e-commerce giant could increase to 300,000 in the next five years.
As such, Rivian could open a big revenue opportunity for Ambarella in the long run, especially considering that the start-up plans to ramp up its annual production to at least a million units by the end of the decade.
More reasons to buy Ambarella
Rivian is just one of the tailwinds for Ambarella in the automotive camera market. The chipmaker has built a solid portfolio of companies that are expected to use its chips to power the cameras in their vehicles. Ambarella has announced multiple design wins this year for its automotive camera chips with the likes of Yandex, KeepTruckin, Autocruis, and Momenta, among others, in recent months.
Arrival, another EV company, had selected Ambarella's CV chips for powering the autonomous driving function and advanced driver-assistance systems (ADAS) in its buses and vans in June this year. In all, Ambarella has a design win pipeline worth $700 million in the automotive space now as compared to $400 million last year.
Given that the company has generated $303 million in revenue over the past year, the automotive design win pipeline alone points toward terrific growth in its revenue. Throw in Ambarella's prospects in the security camera market, and it is easy to see why the company is expected to clock nearly 87% annual earnings growth over the next half-decade.
It can be said that one of Rivian's key suppliers is built for long-term growth thanks to the growing deployment of cameras in vehicles, which makes Ambarella a top growth stock to buy for the long run.