Nanalyze

Invest in 4 Disruptive Technologies with 1 Stock

We’ve written before about Micro Electro Mechanical Systems or MEMS and how these devices are commonly used to power the technologies of today such as smartphones. One company that we came across recently, Ambarella (NASDAQ:AMBA), is a developer of semiconductor processing solutions for video that enables high-definition video capture, sharing and display. AMBA is the exclusive provider of systems-on-a-chip (SoC) for GoPro’s pervasive action cameras such as the one seen below:

Ambarella_Camera

Revenue growth for AMBA has been nothing short of astounding, with revenues increasing from $21.5 million in fiscal year 2008 to $218.3 million in fiscal year 2015 as seen below:

Ambarella_Revenues

AMBA became a public company on October 10, 2012 and since then the stock price has increased +1745% giving the Company a market cap of $3.55 billion. The 4 areas of disruptive technology that AMBA targets are as follows.

1. Automotive Cameras

Last month we wrote about how driverless cars pose a very disruptive threat to many aspects of the automotive industry. Adoption will be slow with “partial automation” being enabled first until drivers become comfortable with the notion of a computer fully controlling their automobile. A key aspect of driverless cars is the “eyes” of the car that create the reality for computers to interpret. These cameras are referred to as camera-based advanced driver assistance systems (ADAS). While Mobileye is a company that is a leader in this space, AMBA also offers HD automotive camera solutions such as the one seen below:

Ambarella_Auto_Camera

2. Wearable Cameras

The advent of GoPro was disruptive in that it created a market full of adventure seekers eager to show the public what sort of thrills they experience in their sports. The “wearable camera” market was all but captured by a company called GoPro which saw a very successful IPO but has since all but crashed. Now GoPro cameras are ubiquitous, even appearing on many drones as an accessory. This brings us to our third disruptive technology application; drones.

3. Drones

While most major drones manufacturers allow you to use a GoPro with your drone, GoPro has taken notice of this demand and announced their intention to enter the drone market themselves in mid-2016. With GoPro being a major client of Ambarella, this will only serve to drive demand further for cameras. Even if GoPro’s drone offering is unsuccessful, Ambarella will continue to sell their camera technology to other drone manufacturers.

4. Home Automation

The recent IPO of Alarm.com highlighted the growth in home automation solutions that include pervasive security cameras which communicate valuable information for home security. Ambarella provides a line of full HD consumer-targeted IP cameras and applications, including cloud-based home surveillance.

While AMBA doesn’t break down their revenues by segment, these four disruptive technologies should continue to grow demand for their products. For the fiscal year 2015, sales to their five largest customers collectively accounted for approximately 64% of their total revenue, and sales to their ten largest customers collectively accounted for approximately 74% of our total revenue. They also use a single logistics provider for over 64% of their sales and their majority supplier is Samsung. Losing a major customer, a strong-arm move by their sole supplier, or a problem with their logistics partner are all risks the company faces.

While the share price has performed strongly and the future looks bright, investors should understand the risk associated with volatile growth stocks. One news report about a lawsuit from a fatal car wreck or the development of a bear market could easily cause the stock price to plummet. Believers in AMBA will use this as a buying opportunity while those who bought at the top will be tempted to accept their losses and move on. We’ll continue to watch the stock and hope that the financials will eventually provide some transparency into which disruptive technologies are contributing the most to AMBA’s revenue growth.

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