Can Ambarella Rival SoundHound in AI Chips by 2025?

Published Date : 09/01/2025 

Ambarella, a lesser-known chipmaker, has been making significant strides in the AI market. Similar to SoundHound, which saw a 936% increase in stock value, Ambarella is positioned to capitalize on the growing demand for AI-enabled chips. Here’s why investors might want to consider Ambarella as the next big thing in AI. 

Introduction to Ambarella and the AI Market

Ambarella (AMBA) has been a formidable player in the chip market, focusing on image and video processing for automotive and IoT devices.

The company's recent performance and strategic positioning in the AI sector suggest that it could be the next SoundHound, a company that saw a 936% increase in stock value.

SoundHound took off in February last year after AI giant Nvidia revealed a stake in the company.

However, Ambarella offers a more affordable entry point for investors looking to capitalize on the AI boom.

Ambarella's Strategic Focus on AI

Ambarella designs chips that enable advanced image and video processing in cameras, primarily for the automotive and IoT sectors.

The growing adoption of AI in these areas is driving demand for Ambarella's system-on-chips (SoCs).

Edge AI, which processes data locally on devices, is a key focus.

This local processing reduces latency, enhances security, and provides real-time decision-making capabilities, making it ideal for applications ranging from medical imaging to smart home devices and robotics.

Market Growth and Ambarella's Performance

Fortune Business Insights projects that the global edge AI market will grow from $20 billion in 2023 to nearly $270 billion by 2032.

Ambarella is well-positioned to capture a significant share of this market.

In its fiscal 2025 third quarter, Ambarella reported a 63% year-over-year revenue increase to $82.7 million.

CEO Fermi Wang noted that AI revenue contributed to a higher average selling price (ASP), driving the company's growth.

Ambarella's profitability has also improved.

The company reported non-GAAP earnings of $0.11 per share, a significant improvement from a loss of $0.28 per share in the same period last year.

Ambarella's guidance suggests that it will end fiscal 2025 with a revenue of $279 million, a 23% increase from fiscal 2024 levels.

Analysts expect robust double-digit growth over the next few years.

Expanding Addressable Market and Revenue Pipeline

Ambarella's addressable market is expected to grow from just over $5 billion in 2024 to around $8 billion by 2027.

The company's automotive revenue funnel for the next six years is estimated at $2.2 billion, with $800 million in secured business and $1.3 billion in the pipeline.

If all this pipeline converts to revenue, Ambarella's annual automotive revenue run rate could reach $360 million, a significant improvement from the fiscal 2024 revenue of $77 million.

Why Invest in Ambarella?

Ambarella's stock is currently trading at 12 times sales, making it much more affordable compared to SoundHound, which has a price-to-sales ratio of 94.

Ambarella's performance, solid pipeline, and expanding addressable market make it an attractive investment.

The company's growth potential, driven by the increasing demand for AI-enabled chips, suggests that it could deliver strong returns in the future.

Conclusion

While SoundHound has been a standout performer, Ambarella offers a more accessible and potentially rewarding investment opportunity in the AI chip market.

With its strategic focus on edge AI, strong financial performance, and a growing market, Ambarella is well-positioned to become the next big player in the AI sector. 

Frequently Asked Questions (FAQS):

Q: What is Ambarella's main focus in the AI market?

A: Ambarella focuses on designing chips for image and video processing in cameras, primarily for automotive and IoT applications. They specialize in edge AI, which processes data locally on devices to reduce latency and enhance security.

Q: How has Ambarella's revenue and profitability improved recently?

A: Ambarella reported a 63% year-over-year revenue increase to $82.7 million in its fiscal 2025 third quarter. The company also improved its non-GAAP earnings to $0.11 per share, up from a loss of $0.28 per share in the same period last year.

Q: What is the projected growth of the edge AI market, and how is Ambarella positioned in it?

A: The global edge AI market is expected to grow from $20 billion in 2023 to nearly $270 billion by 2032. Ambarella is well-positioned to capture a significant share of this market with its AI computer vision chips.

Q: What is Ambarella's addressable market expected to be in 2027?

A: Ambarella's serviceable addressable market is expected to grow from just over $5 billion in 2024 to around $8 billion by 2027.

Q: Why is Ambarella considered a good investment compared to SoundHound?

A: Ambarella is trading at 12 times sales, making it much more affordable compared to SoundHound, which has a price-to-sales ratio of 94. Ambarella's solid financial performance, expanding market, and strong pipeline make it an attractive investment opportunity. 

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