Shares of Ambarella plunged as much as 16.5% on May 29, erasing more than a week of pre-earnings gains and raising a pointed question: if revenue and earnings are beating forecasts, why are investors fleeing? The answer lies in a widening gap between the company's AI growth story and its ability to turn that growth into fatter profits.
The Numbers Looked Good on the Surface — Until You Read the Fine Print. Q1 revenue hit $100.4 million, up 16.9% year over year , and non-GAAP EPS of $0.11 crushed a consensus estimate of $0.01 . But GAAP gross margin — the share of revenue left after manufacturing costs — fell to 58.4%, down from 60.0% a year ago . That slide matters because it signals Ambarella is selling more chips at thinner profit per chip, likely due to product mix shifting toward higher-volume, lower-margin customers. Management's long-term gross margin target of 59%–62% leaves little room for further erosion.
The Stock Ran Up Too Far, Too Fast — and the CEO Sold Before It Fell. AMBA surged from roughly $83.64 on May 21 to $93.57 by May 26. CEO Fermi Wang sold 32,500 shares for approximately $2.96 million on May 26, at prices between $90 and $92.50 — just two days before earnings. Insiders had offloaded $5.9 million in shares over the prior three months . While pre-planned, the optics amplify the selloff's sting for shareholders who bought the rally.
A Blockbuster Deal Can't Paper Over Near-Term Profit Doubts. Ambarella announced a long-term agreement with Hanwha worth over $800 million spanning more than a decade , and automotive revenue hit an all-time quarterly record . Yet Q2 guidance of $105–$111 million in revenue with non-GAAP gross margins still pinned at 59%–60.5% tells investors that growth isn't improving profitability. Research spending still consumes about 61% of revenue , keeping the company stuck in net-loss territory on a GAAP basis — the Q1 GAAP net loss was $18.1 million .
The Core Tension: Growing Revenue, Shrinking Patience. Full-year revenue growth guidance held at 10%–15% , solid but decelerating sharply from fiscal 2026's 37.2% jump . With a negative P/E ratio and a stock that nearly doubled off its 52-week low, today's reset suggests the market now demands proof that AI-powered auto and security chips can deliver profits, not just top-line momentum.