Ambarella NASDAQ: AMBA reported fiscal second-quarter revenue of $108.1 million, up 7.7% sequentially and 13.2% from a year earlier, as record AI revenue and continued demand from automotive and IoT customers supported results. The company posted non-GAAP diluted earnings per share of $0.18, or non-GAAP net income of $8.2 million.
Revenue came in slightly above the midpoint of Ambarella’s prior outlook of $105 million to $111 million. Chief Financial Officer John Young said automotive revenue reached a new record, supported by commercial-vehicle adoption of AI technology. Automotive revenue grew slightly faster than the company’s IoT business, where enterprise-oriented operations outperformed consumer-led businesses.
Margins, cash flow and third-quarter outlook
Non-GAAP gross margin was 59.3%, below the midpoint of the company’s prior 59% to 60.5% forecast. Non-GAAP operating expenses were $57.4 million, slightly below the midpoint of its projected $56 million to $59 million range.
Ambarella ended the quarter with $272.3 million in cash and marketable securities, down $5.5 million sequentially but up $11.1 million from a year earlier. The sequential decline primarily reflected higher payments for intellectual-property licenses. Operating cash flow was negative $260,000, while free cash flow was negative $7.1 million after $6.8 million in capital expenditures.
The board authorized a new $50 million stock-repurchase program through June 30, 2027. Ambarella did not repurchase shares during the fiscal second quarter.
For the fiscal third quarter ending Oct. 31, Ambarella forecast revenue of $115 million to $124 million, with a midpoint of $119.5 million. The company expects IoT physical-AI demand to lead growth at the midpoint. It forecast non-GAAP gross margin of 59% to 60% and non-GAAP operating expenses of $56.5 million to $59.5 million.
Memory constraints remain an industry concern
President and CEO Fermi Wang said rising memory prices and limited supply are affecting the wider technology supply chain as memory vendors prioritize AI data-center demand. Ambarella said it is helping customers pursue workarounds and expects to pass through its own higher supply-chain costs to protect its long-term gross-margin target of 59% to 62%.
Wang clarified during the question-and-answer session that memory costs do not directly affect Ambarella’s gross margin because the company does not buy and resell memory. Instead, the concern is that higher memory prices could affect customers’ product volumes and, in turn, their chip purchases.
The company said it saw little effect from memory constraints on second- and third-quarter revenue, but it is monitoring potential impacts in the fourth quarter. Wang said that, absent a material memory-related effect, investors should expect normal fourth-quarter seasonality.
Expanded market forecast and edge-infrastructure push
Ambarella raised its five-year serviceable available market forecast to $22.9 billion in fiscal 2032, from $8.5 billion in fiscal 2027, representing an estimated compound annual growth rate of about 20%. The company said IoT markets are expected to account for roughly 70% of the terminal-year opportunity.
Wang said the largest driver of the revised forecast is the company’s expansion into edge infrastructure, where enterprises use on-premise AI inference hardware to improve operational efficiency. He identified security, retail, lodging, logistics and healthcare among the potential markets.
The company is developing additional AI systems-on-chip products and a standalone AI accelerator line for edge infrastructure. Wang previewed the X7 accelerator, which is sampling and is expected to secure initial design wins in edge-infrastructure applications. The accelerator can serve as a co-processor for Arm- and x86-based host systems and can also be paired with Ambarella’s own chips.
Wang said the X7 is designed to operate in a roughly 4- to 5-watt power envelope and requires a smaller memory footprint than GPU-based alternatives for certain workloads. He acknowledged that the market includes competitors such as NVIDIA and Qualcomm as well as numerous startups, but said Ambarella intends to compete on power efficiency, cost and its hardware-software platform.
Partners and semi-custom opportunities
Ambarella announced two partnerships intended to establish an indirect sales channel: a strategic partnership with Capgemini and a seven-year agreement with technical distributor Macnica. The company said the relationships are designed to expand access to customers that have largely been unserved by Ambarella’s historically direct-sales model.
Capgemini is expected to focus on larger enterprise deployments, while Macnica is expected to aggregate smaller and midsize customers in fragmented markets. Both partners will use Ambarella’s Cooper development platform, according to Wang.
Management said meaningful revenue from the indirect-channel effort is expected in two to three years, though smaller design wins could generate revenue sooner. Wang said the company expects each partnership could produce about $500 million in revenue over seven years, while Customer Growth Officer Muneyb Minhazuddin said the estimates reflect different models: Macnica as a volume-oriented distribution opportunity and Capgemini as a higher-value, more complex enterprise opportunity.
Ambarella also said its first semi-custom project, a 2-nanometer CVAS system-on-chip, remains expected to generate initial production revenue in fiscal 2028. Young said a separate customer-development project that resulted in a $9 million reduction in GAAP research-and-development expense was not among the semi-custom projects and involved an automotive autonomy customer.
During the quarter, the company cited customer wins and engagements spanning quadruped robotics, enterprise video intercoms, trail cameras, AI monitoring, driver monitoring and camera-monitoring systems. Wang said Ambarella has added to the robotics design-win pipeline discussed in the prior quarter and raised its related revenue target, though the company did not provide updated figures.
About Ambarella (NASDAQ:AMBA)
Ambarella, Inc is a global semiconductor company headquartered in Santa Clara, California, specializing in video compression, image processing and computer vision technologies. The company designs low-power, high-definition system-on-chip (SoC) solutions that enable the capture, processing and streaming of video in a variety of embedded applications. Ambarella's platforms combine advanced video encoding, multi-core central processing units and hardware accelerators to deliver high-resolution imaging with low power consumption.
Ambarella's product portfolio caters to multiple markets, including security and surveillance, automotive vision, wearable cameras, drones and robotics.
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