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Why Ambarella Stock Dropped This Week

By Demitri Kalogeropoulos – Dec 17, 2021 at 9:15AM

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Investors booked some profits on this high-flying stock.

What happened

Ambarella (AMBA -3.39%) shareholders endured more volatility over the past few trading days, with shares dropping 9% through trading on Thursday compared to no change in the broader market.

The chip technology specialist is still up about 100% so far in 2021, but the recent stock price decline shows how that surge exposes investors to short-term drops when Wall Street is moving out of high-growth companies.

An electronics manufacturer installs a chip.

Image source: Getty Images.

So what

Ambarella didn't gave investors any reason to push shares lower this week. Instead, the maker of computer vision chip technology appeared to be caught up in wider market trends that have punished high-growth names in the tech industry. Those moves are to be expected following dramatic surges like the one that sent Ambarella's stock higher by 150% from the start of 2021 until late November.

The good news is that management's last earnings update indicated that the business is firing on all cylinders as of late October, with sales expanding and profit margins rising while the company capitalizes on the proliferation of video processing chips in areas like autonomous driving and video security.

Now what

CEO Fermi Wang told investors in late November that supply chain shortages may temporarily throttle sales growth into early 2022, if Ambarella doesn't find a way to secure all the components it needs.

But the company is still targeting over 40% year-over-year growth for the fiscal fourth quarter, which ends in late January. Shareholders can look forward to a detailed report of those results, likely within the first week of March.

Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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