Here’s Why This Top Growth Stock Can Triple Once Again

Ambarella (NASDAQ:AMBA) stock has set the market on fire as its business has taken off thanks to the growing demand for security and automotive cameras. Shares of the company, whose computer vision chips power such cameras, have nearly tripled over the past year, with its latest fiscal 2022 second-quarter results (released on Aug. 31) playing a big role in that spike.

AMBA data by YCharts

Ambarella crushed Wall Street’s estimates on the back of strong end-market demand as well as the company’s entry into new markets. Let’s see what worked for Ambarella last quarter and check why it can replicate its terrific stock market performance in the future as well.

Ambarella is on fire

Ambarella’s Q2 revenue shot up 58% year over year to $79.3 million. Adjusted net income came in at $13.1 million, or $0.35 per share, a massive jump over the year-ago period’s figure of $2.1 million, or $0.06 per share. Ambarella’s explosive earnings growth was driven by a nice jump in the company’s margins. It reported an increase of 450 basis points in the operating margin last quarter on the back of higher average selling prices.

Analysts expected Ambarella to deliver $0.25 per share in earnings on $75.7 million in revenue. The good news for investors is that the company looks all set to exceed expectations for a long time to come. That’s evident from the company’s guidance that calls for $90 million in revenue this quarter at the midpoint of the range, which is substantially higher than the $78.6 million analysts were looking for.

It is worth noting that Ambarella had delivered $56.1 million in revenue during the prior-year period, which means that it expects a 60% increase in the top line this quarter. That would be a step up from the company’s performance last quarter.

So, what’s driving such impressive growth for Ambarella, especially considering that it was struggling just over a year ago? Ambarella credits the red-hot demand for camera chips for its turnaround. CEO Fermi Wang pointed out on the latest earnings conference call that Internet-of-Things security cameras and automotive cameras are driving substantial growth for the company. These two applications produced approximately 90% of the company’s revenue last quarter. This bodes well for Ambarella as they are two fast-growing niches that should ensure long-term growth for the company.

Two big catalysts that could send the stock flying

The IoT-enabled security camera market is Ambarella’s biggest source of revenue right now. The company estimates it will get approximately 60% of its fiscal 2021 revenue from this business.

Ambarella points out there were more than 900 million security cameras installed across the globe last year. However, most of them are older-generation cameras that are either analog in nature (first-generation) or networked cameras that need to be supervised by humans (second-generation). The third-generation…