AI stocks are on a tear, but the excitement around the transformational technology hasn't extended to Ambarella (AMBA -2.48%). The semiconductor company specializes in computer vision chips used in video security, robotics, and advanced driver assistance applications.

Investors are excited about AI, but Ambarella isn't getting any love. The stock tumbled on Wednesday following a first-quarter report that failed to excite anyone. Revenue crashed, the bottom line plunged, and the company's guidance left a lot to be desired.

Even AI can't fight a tough economy

Ambarella reported Q1 revenue of $62.1 million, down 31% year over year. Net loss was $35.9 million, much worse than a loss of $10.8 million in the prior-year period.

The semiconductor industry is currently in a significant downturn. Demand for a wide variety of chips, ranging from memory chips to CPUs, is severely depressed. Part of the problem is lower end-market demand, and part of the problem is excessive levels of inventories throughout the supply chain.

Ambarella is facing challenges similar to the PC industry. Its customers are sitting on too much inventory, so they're buying less as they work those inventory levels down. The situation didn't get any better in Q1, according to Ambarella CEO Fermi Wang: "So, I think from that point of view, I think the situation is very similar to last quarter, and we have not seen anything -- any indication that this inventory correction will end."

The company's guidance lines up with these continued challenges. Ambarella expects to generate revenue between $60 million and $64 million in Q2, down 23% year over year at the midpoint. While NVIDIA, which produces AI chips that can train and run the large language models that are taking the tech industry by storm, is struggling to keep up with demand, Ambarella isn't catching the AI wave with its narrower focus on AI vision applications.

Time to buy the dip?

Ambarella has two big long-term opportunities. First, the company's technology is front and center as automakers include advanced driver-assistance features and move toward autonomous driving. While the company's addressable market for its automotive products right now is largely constrained to simpler driver-assistance features, that won't remain the case for long. By 2027, Ambarella expects its addressable market for Level 2+ driving automation to reach $3.6 billion, up from just $200 million today.

Beyond automobiles, Ambarella can grow its IoT business by enabling advanced AI-powered features. Almost all security cameras in use today rely on human viewing. That's around 900 million devices that could be replaced over time with AI-powered cameras. Ambarella is focusing on higher-value market segments, and it also sees opportunities in wearables, aerial drones, and robotics.

While Ambarella's long-term story remains intact despite the current downturn, the stock is not particularly cheap. With a market capitalization of about $2.7 billion, shares trade for more than 10 times its annual run-rate revenue based on Q1. And with fully self-driving cars always seemingly a few years away, it's unclear whether that opportunity will live up to the company's expectations.

With the company facing persistent headwinds, Ambarella stock doesn't look like a buy right now.