EPS of $-0.47 increased by 44.7% from previous year
Gross margin of 58.9%
Net income of -20.00M
"Edge AI is expected to represent about 80% of our total revenue this year." - Feng-Ming Wang
Ambarella Inc (AMBA) QQ2 2026 Financial Results Analysis — Edge AI Market Breadth Propels Record Momentum; 5nm SoCs Expand ASP; IoT Leadership and Drones Highlight Next-Gen Growth
Executive Summary
Ambarella reported Q2 fiscal year 2026 revenue of $95.51 million, up 11.2% sequentially and 49.9% year-over-year, led by edge AI applications. Management reiterated a strategic shift toward expanding edge AI breadth across portable video, robotics, and edge infrastructure, with IoT accounting for the majority of revenue and edge AI expected to represent roughly 80% of total revenue this year. The company disclosed a 60.5% non-GAAP gross margin and a non-GAAP net profit of $6.4 million ($0.15 per diluted share) amid ongoing R&D investment, while GAAP net income was -$19.99 million per quarter. Q3 guidance calls for $100–$108 million in revenue (midpoint $104 million) and a full-year 2026 revenue growth target of 31%–35%. Ambarella ended the quarter with a solid balance sheet and substantial cash and investments, supporting continued R&D and product development for its 5-nm AI SoCs and new edge AI infrastructure offerings. Management highlighted wins across robotics drones (Insta360/Arashi), automotive ADAS, and enterprise/security customers, plus a first edge AI infrastructure design win with the N1-655. Investors should monitor execution in auto transitions (L2+/L3), the pace of IoT non-security growth, seasonality in Q3/Q4, and the sustainability of margin expansion as the product mix shifts toward higher ASP edge AI solutions.
Operating expenses: $78.22 million; Non-GAAP Opex $53.4 million (below mid-point of prior guidance).
EBITDA: -$19.742 million; Operating income: -$21.989 million; Income before tax: -$19.742 million; Net income: -$19.995 million; EPS (diluted): -$0.47.
Non-GAAP net income: $6.4 million; Non-GAAP EPS: $0.15.
Financial Highlights
Quarterly metrics and mix highlights:
- Revenue: $95.51 million; QoQ +11.22%; YoY +49.9%.
- Gross profit: $56.231 million; GAAP gross margin 58.87%; Non-GAAP gross margin 60.5% (guidance range 60.5%–62%).
- Operating expenses: $78.22 million; Non-GAAP Opex $53.4 million (below mid-point of prior guidance).
- EBITDA: -$19.742 million; Operating income: -$21.989 million; Income before tax: -$19.742 million; Net income: -$19.995 million; EPS (diluted): -$0.47.
- Non-GAAP net income: $6.4 million; Non-GAAP EPS: $0.15.
- Balance sheet: Cash & marketable securities $261.2 million; Cash at period end $143.181 million; Net debt (net of cash/investments) negative $139.3 million.
- Cash flow: Operating cash flow $5.506 million; Free cash flow $10.071 million; Capex $4.565 million.
- Unit economics and mix: IoT revenues represented slightly more than 75% of total revenue; edge AI is expanding into portable video, robotics/drones, and edge infrastructure.
- Guidance (Q3/FY2026): Revenue $100–$108 million (midpoint $104 million); Non-GAAP gross margin 60%–61.5%; Non-GAAP OpEx $54–$57 million; Net interest ~$2 million; Non-GAAP tax ~$0.8 million; Diluted shares ~43.7 million.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
95.51M
49.88%
11.22%
Gross Profit
56.23M
45.15%
9.11%
Operating Income
-21.99M
39.40%
14.96%
Net Income
-20.00M
42.69%
17.81%
EPS
-0.47
44.71%
18.97%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the earnings call:
- Strategy and growth breadth: Fermi Wang highlighted expanding edge AI applications, with portable video, robotics/drones, and edge infrastructure as rapid growth drivers, and announced the N1-655 edge AI infrastructure SoC as a new win. Quote: “Edge AI is expected to represent about 80% of our total revenue this year.”
- Financials and outlook: John Young emphasized solid sequential growth and IoT dominance in Q2, with IoT representing over 75% of revenue, and guided Q3 revenue of $100–$108 million and FY2026 growth of 31%–35%. Quote: “IoT in fiscal Q2 represented slightly more than 75% of our revenue and is spread across an increasing number of edge AI applications.”
Edge AI is expected to represent about 80% of our total revenue this year.
— Feng-Ming Wang
IoT in fiscal Q2 represented slightly more than 75% of our revenue and is spread across an increasing number of edge AI applications.
— John A. Young
Forward Guidance
Outlook assessment:
- Revenue trajectory: Q3 guided at $100–$108 million (midpoint $104 million); FY2026 guidance implies 31%–35% growth, consistent with a sustained expansion in edge AI penetration and ASP uplift from 5-nm CV5-class SoCs. Management cites a broad and expanding edge AI portfolio and stronger ASPs, supported by new wins (Insta360/Arashi, Samsara CV72, Audi CV22FS) and the N1-655 infrastructure opportunity.
- Margin and profitability: Non-GAAP gross margin targeted at 60–61.5% in Q3; OpEx expected to rise slightly to fund new product development. Achievability hinges on continued favorable mix toward higher ASP edge AI solutions and execution of auto-related design wins (L2+/L3+ ADAS) with timely revenue recognition.
- Catalysts and risks: Key growth drivers include portable video and drone opportunities (Insta360 Antigravity A1, 8K 360° drone) and edge infrastructure demand. Risks include OEM adoption delays in automotive ADAS, seasonality in consumer cycles, supply chain volatility, and potential customer concentration effects via logistics partners. The company also noted a longer decision cycle for automotive programs, which could slow auto revenue realization relative to IoT.
- Bottom line: The revenue growth trajectory remains favorable, supported by a large TAM for edge AI across multiple verticals. Investors should monitor milestones around the N1-655 alternative deployments, further IoT wins beyond portable video, and the pace of automotive wins that unlock multi-year revenue opportunities.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
AMBA Focus
58.87%
N/A
N/A
N/A
ACLS
43.80%
20.60%
5.44%
22.54%
KLIC
24.90%
-52.30%
-9.78%
-5.21%
UCTT
17.10%
4.44%
2.24%
28.80%
COHU
35.50%
-15.90%
-1.76%
-24.65%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
Baseline: Modest-to-solid full-year revenue growth (31%–35%), supported by a broad edge AI product portfolio and expanding ASPs from 5nm SoCs. Favorable cash flow and robust balance sheet underpin ongoing R&D investments and potential new design wins. Upside could come from faster-than-expected ramp in edge AI infrastructure and portable video/drones segments, plus additional auto ADAS wins with earlier-than-expected revenue realization. Bear case risks include slower auto conversion, higher-than-expected R&D expenditure pressure, and potential supply-chain/sales channel volatility deteriorating near-term profitability. Overall, Ambarella remains strategically positioned as an edge AI platform leader with meaningful long-term growth optionality contingent on execution across multiple end-markets.
Key Investment Factors
Growth Potential
Ambarella's Edge AI market breadth continues to broaden (portable video, robotics/drones, edge infrastructure) with 80% of current-year revenue anticipated from edge AI. The N1-655 infrastructure SoC and 5nm AI SoCs are central to ASP growth and higher-margin mix. Management cites a SAM of ~$125 million for edge infrastructure this year, potentially scaling toward ~$500 million in five years, underscoring substantial long-term addressable market. Design wins with Insta360, Samsara, Audi, and others indicate a robust, multi-year growth runway.
Profitability Risk
Primary risks include automotive program delays and the cycle-driven timing of Level 2+/L3 ADAS revenues, OEM cost pressures, and seasonality in consumer cycles. Customer concentration through a large logistics partner (WT Microelectronics) in Q2 points to potential revenue concentration risk. R&D intensity remains high as Ambarella funds development of next-gen SoCs; any delays in transistor process transitions (e.g., 2nm ramp targeted for early 2027) could impact near-term margin and revenue visibility. Competitive dynamic in edge AI and ongoing M&A chatter add macro risk to the equity story.
Financial Position
Healthy balance sheet with a strong cash position and net cash of approximately $139 million. No material debt load; total stockholders’ equity of roughly $576.5 million against total assets of $706.4 million. Operating cash flow was positive in Q2 ($5.5 million), with free cash flow of $10.1 million, supporting ongoing R&D and capital investments. However, a portion of the business is financed by ongoing R&D and SG&A investments that suppress near-term profitability.
SWOT Analysis
Strengths
Leading edge AI processor supplier with broad edge AI application exposure (IoT, portable video, drones, edge infrastructure).
Strong order momentum and diversified design wins (Insta360, Samsara, Audi; BAIC; Honeywell India).
High gross margins (non-GAAP 60.5%) and a healthy cash position supporting R&D and platform development.
5nm AI SoCs and a scalable Cooper platform provide leverage across customers and chip families.
Weaknesses
GAAP profitability remains negative as Ambarella funds aggressive R&D and go-to-market expansion.
Significant dependence on edge AI mix; auto timing remains volatile due to OEM cycles and pricing pressure.
Customer concentration via a large logistics partner (WT Microelectronics) indicating channel dependency risk.
Opportunities
Expansion into edge infrastructure with N1-655; large TAM for AI-enabled appliances and LLM-assistededge inference.
Rapid IoT expansion beyond security into portable video, robotics, and enterprise applications.
Multi-year auto opportunity with CV3 ADAS and Level 2+/3 ADAS, enabling longer revenue visibility.
Threats
OEM adoption delays in automotive, potential macro shifts affecting capital expenditure cycles.
Competitive pressure from other edge AI platforms and GPU-based solutions; technology and supply chain risks during process node transitions.
Geopolitical/regulatory factors and macro uncertainty affecting electronics supply chains.