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SoundHound AI has emerged as one of the standout stocks over the past year, currently showing remarkable gains of 936%. This surge is attributed to multiple factors that have come together to elevate the company’s market position.
The stock’s significant rise began in February of the previous year, primarily triggered by news of a stake held by the AI powerhouse Nvidia in SoundHound. It’s important to note, however, that SoundHound has consistently demonstrated substantial quarterly growth, capturing the interest of investors on Wall Street and further fueling its stock appreciation in the last year.
Despite its robust performance, purchasing SoundHound stock at this juncture may not be the wisest decision, especially as the company’s price-to-sales ratio currently stands at an eye-popping 94. Conversely, investors seeking promising alternatives may consider looking into Ambarella (AMBA -4.94%), a small company poised to leverage the burgeoning AI trend.
In this article, we will delve into Ambarella’s operations and explore how AI is serving as a pivotal driver of growth for this relatively obscure chipmaker.
Ambarella Benefits from AI Innovations
Ambarella specializes in designing chips that facilitate image and video processing for cameras used mainly in the automotive sector, in addition to applications in the Internet of Things (IoT) such as security and wearable cameras, drones, and more. The firm has highlighted that the increasing integration of AI capabilities in vehicle cameras and IoT devices significantly boosts demand for its system-on-chip (SoC) products designed to handle AI workloads directly at the source.
Edge AI refers to processing data locally on devices, eliminating the need for data transfer to a central AI server. This allows for immediate decision-making, which diminishes latency while enhancing security and privacy. As demand for edge AI expands across various sectors, from healthcare imaging to intelligent home devices, its market potential is substantial.
According to Fortune Business Insights, the edge AI market is projected to soar to nearly $270 billion in annual revenues by 2032, up from around $20 billion in 2023. Ambarella is strategically positioned in this field, developing AI-powered computer vision chips aimed at edge devices. Notably, these AI-specific innovations are already generating significant revenue for the company.
In its third fiscal quarter for 2025, which concluded on October 31, Ambarella reported an impressive 63% increase in year-over-year revenue, reaching $82.7 million. During the company’s earnings call, CEO Fermi Wang remarked on Ambarella’s record performance in AI-related revenues, which contributed to a higher average selling price.
The uptick in AI revenue has spurred Ambarella’s growth, particularly given that the revenue for the first nine months of the fiscal year had only increased by 15%, totaling $201 million. Additionally, Ambarella recorded non-GAAP earnings of $0.11 per share for the third quarter, a notable improvement compared to a loss of $0.28 per share for the same period last year.
Clearly, the enhanced average selling price of Ambarella’s AI chips is positively influencing its profitability. Furthermore, the company has indicated strong guidance for continued growth, projecting fiscal fourth-quarter revenues of around $78 million, which would represent a 51% increase compared to the prior year’s quarter.
Analysts anticipate that Ambarella could conclude fiscal 2025 with total revenues of approximately $279 million, reflecting a 23% rise from fiscal 2024. Expectations remain optimistic for sustained double-digit growth in the coming years, with the potential for even stronger performance that exceeds analysts’ forecasts.
Future Revenue Prospects for Ambarella
Ambarella is optimistic about the positive impact AI will have on its addressable market over the next three years. The company’s serviceable addressable market is projected to grow from just over $5 billion at the end of 2024 to an estimated $8 billion by 2027.
Moreover, Ambarella has outlined a robust automotive revenue pipeline for the next six years, estimated at around $2.2 billion. This includes $800 million already secured and an additional $1.3 billion in potential contracts. If the entire pipeline converts into actual sales, it could lead to an annual automotive revenue run rate of approximately $360 million, a significant jump from $77 million recorded in fiscal 2024.
With the growing prospects in AI-integrated IoT devices, Ambarella appears well-positioned for future revenue increases. Its potential for accelerated growth may surpass Wall Street’s current expectations.
Given all these factors, now might be an opportune moment for investors to consider purchasing Ambarella stock, even after a 33% rise over the past six months. The stock is currently priced at 12 times its sales, making it substantially more affordable than SoundHound. While SoundHound reported an impressive 89% revenue increase year-over-year for the third quarter of 2024, Ambarella’s recent performance highlights its capacity for remarkable growth, promising investors further gains ahead, thanks to its expanding pipeline and market opportunities.
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