Image source: Ambarella.
What: Shares of Ambarella (AMBA 1.41%) climbed as much as 10.2% Tuesday after receiving an upgrade from Morgan Stanley analyst Joseph Moore. So what: Specifically, after remaining on the sidelines with valuation concerns given Ambarella's relatively narrow customer concentration -- GoPro (GPRO +1.37%), for example, has previously accounted for as much as 30% of Ambarella's annual revenue -- Moore upgraded Ambarella stock from "equal-weight" to "overweight," and simultaneously assigned a $55-per-share price target on the video processing chip company. For perspective, that represents a more than 20% premium for Ambarella shareholders even after today's big pop.
Now what: To justify his optimism, Moore suggested Ambarella should be poised to "grow nicely from here," thanks to a combination of its continued diversification into emerging markets like IP Security, automotive, and drones, as well as Moore's opinion that GoPro's business has "bottomed." Recall that earlier this month, Ambarella blamed high inventories in the wearable camera segment (which GoPro dominates) for an expected 24% to 20% decline in revenue for the current quarter. Analysts, for their part, were anticipating sales would fall a slightly more modest 12.1% from the same year-ago period. Excluding GoPro, though, Moore now believes the rest of Ambarella's business should grow a healthy 11% year over year this quarter.
As it so happens, I went out on a limb to argue Ambarella stock was worth waiting for in an article just this morning, so suffice it to say I largely agree with Moore's call. With shares of Ambarella still more than 60% below their 52-week-high set this past June, I think the stock has plenty of room to move up from here.
