Game-changing news for Ambarella puts the market in reversal

Key Points

• Ambarella announced game-changing news that has shares melting up after a prolonged downturn. 
• The Canopy security system will upset the automotive security industry.
• The win for Ambarella is huge and should lead to new customers over the coming quarters. 

Ambarella NASDAQ: AMBA reported some game-changing news for investors. The company was chosen to provide microchips for an automotive industry first. A start-up and joint venture between Ford Motor NYSE: F and ADT NYSE: ADT called Canopy uses the CVFlow SoC to power its aftermarket truck-bed security camera. 

This may not seem like a big deal, but security is a growing problem for truck owners. Trucks are often used to haul valuable items, including work and trade-related equipment, well-known to “grow legs and walk away.” This is a significant opportunity because pick-up trucks are more than 20% of all vehicles on the road, and expanding use cases should be expected. 

"We selected Ambarella's CVflow SoC because it provides a powerful AI engine with low power consumption, fast boot and excellent low-light performance," said Canopy CTO Ben Brown. "These industry-leading features helped us combine the benefits of smart home technology with our automotive and AI expertise to create the only multi-make security system that proactively protects pickup owners' valuable truck bed cargo."

AI and real-time alerts are why Canopy security will upset the market

Canopy systems are easy to use and install, providing industry-leading technology, not just in the after-market. Compared to what is currently available, the main difference in this system is the AI-enabled edge computing allowed by Ambarella's processor. Capabilities include live check-in, intrusion detection, real-time (mobile real-time) alerts, and video evidence. 

Installation is easy, the video instructions are 6 minutes, and the system will work with sliding rear window panels. Once installed, users connect with a handy mobile app. Because the system is AI-enabled, false alarms from innocent passersby are kept to a minimum. FYI, the Army uses Ambarella systems in their drones to track and target moving objects.

The opportunity for Ambarella lies in sales volume and penetration. Among CVFlow's attractions for Canopy is the ability to scale, which plays into the upgrade cycle and future product expansions. Current users may be able to add additional cameras for enhanced security and fleet management. The opportunity for Canopy, Ford and ADT is sales and subscriptions. 

The cost of the system is low at just under $300. Any truck owner can get value at this price point, but a subscription exists. The subscription runs $14.00 per month for unlimited LTE connectivity, which is required for features like check-ins and alerts. Once charged, the onboard battery system is sufficient to keep the product operating 24 hours indefinitely with regular driving to recharge the system. 

This is a win for Ambarella 

Among the plans for Canopy is to embed the system as an option for Ford customers. Because it is an easy-to-install aftermarket product, it may become a standard option at other OEMs. Regardless, this is a high-profile win for Ambarella that proves the efficiency and utility of its products and could lead to additional wins soon. 

The analysts have this stock set up to rebound. They've lowered their price targets enough this year to have the stock on the Most Downgraded list, but it's still a Moderate Buy with a minimum of 5% upside. The analysts' low price target is $58 and still above current action, while the consensus is closer to $80, a 50% upside. If they start raising their targets, the price-action updraft could gain momentum. 

The technical outlook: Ambarella enters reversal 

The price action in Ambarella is up nearly 25% from the recent lows and has the market in a reversal. The question now is if the reversal is from down to up or down to sideways, which may be the case. The market faces resistance at a critical level that could mark the top of a trading range as easily as become a pivot point for higher share prices. 

A solid move above $55.50 would be bullish, leading the stock to the $65 level or higher. If resistance is confirmed at this level, the stock may become range-bound, but there is still hope for the bulls. In this scenario, the market may form a Head & Shoulders Bottom and complete the full reversal anyway. Ambarella reports earnings at the end of the month and may give updated guidance to reflect the new business.