Oppenheimer Starts Ambarella At Perform: The Opportunity Is There, Risk-Reward Balanced

Oppenheimer’s Andrew Uerkwitz believes Ambarella Inc AMBA is among the best pure-play investments in the consumer and professional applications market, although the stock’s risk/reward appears balanced at present.

The analyst initiated coverage of the company with a Perform rating.

Balanced Risk/Reward

Uerkwitz believes Ambarella’s risk/reward is currently balanced, given the “1) unfavorable outlook for major end markets in the near term, 2) timing uncertainty for the market trends that support its future growth, and 3) what we see as a fair valuation.”

Uniquely Positioned

The analyst pointed out that the growing popularity of smart devices and easy access to broadband connections have been driving the rapid growth of video content.

Related Link: Morgan Stanley Upgrades Ambarella To Overweight, Maintains $55 PT

The company’s products were “uniquely positioned” to fuel a new wave of consumer and professional devices to capture and stream high quality video, as well as real time analytics.

According to the Oppenheimer report, “Its proprietary video processing architecture and deep domain expertise in video processing and delivery make the company the go-to high-end solution provider in markets such as IP camera, wearable camera, drone camera, and automotive dashboard cameras.”

Future Trends

Uerkwitz expects intelligent video processing to become a must-have feature across several end markets and that Ambarella was well positioned to benefit from this trend.

However, there could be “near-term interruptions from the action and IP camera markets which prompt a reset of the long-term growth outlook with more conservative assumptions,” the analyst said.

While the company’s future growth could be driven by various verticals, including automotive OEMs, drones and the Internet of Things, Uerkwitz pointed out that the timing of these inflection points could still be more than just a few quarters away.