Key Points
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Nvidia is currently a leading AI chip company, while niche chip maker Ambarella also records healthy revenue and revenue growth.
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The demand for AI-enabled edge devices is growing with great clips, and investors can take advantage of its secular growth opportunities by investing in Ambarella.
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AI stocks still trade at an attractive valuation despite their outstanding growth.
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10 stocks we are better than Ambarella›
nvidia (NASDAQ: NVDA) And artificial intelligence (AI) has played a very important role in harnessing the power of this new technology, and has become synonymous with each other in the past few years.
After all, businesses and governments around the world have been buying Nvidia's most powerful chip systems for the past three years to train AI models and run inference applications. And Nvidia continues to offer a very solid growth quarter after the quarter, even after becoming the world's largest company by market capitalization.
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For example, revenue for the second quarter of fiscal year 2026 was just under $47 billion, up 56% from the same period last year. Management expects $54 billion for a healthy increase of 54% this quarter. However, market concerns regarding Nvidia's business in China weigh the stock.
But at the same time, the market is rewarding Ambarella (Nasdaq: Amba) Handsome lately. The lesser-known chipmaker stock price has risen 52% over the past three months. This is twice as fast as Nvidia has grown over the period. Also, smaller semiconductor stocks could bring even more benefits.
Image source: Getty Images.
AI is supercharged with Ambarella's growth
Ambarella designs computer vision processors deployed on drones, vehicles, security cameras and other devices. The chip has gained great traction with edge devices intended to handle AI processes locally.
This helps explain why Ambarella's revenues rose to $55.5 million in the second quarter of fiscal year 2026 from the previous year. This ended on July 31st. Additionally, the company recorded non-GAAP earnings of $0.15 per share compared to a loss of $0.13 per share in the previous year. Management noted in a revenue conference call that Edge AI revenue sets new records for the fifth consecutive quarter.
The company expects Edge AI processors to account for 80% of overall revenue this year. Importantly, increasing demand for chips for a variety of drones, video cameras and vehicle applications has encouraged management to increase year-round guidance. Currently, revenue has grown 33% to $379 million in fiscal year 2026, up from previous forecasts of 22% growth.
This improved outlook is supported by a win over new customers scored by Ambarella in various markets last quarter in the last quarter, as well as production ramp-ups of chips destined to move to robotic drones and edge AI devices. Another thing worth noting is that the Ambarella's Edge AI processors are driving an improvement in average selling prices.
Better yet, Ambarella is confident that it will be able to maintain AI fuel growth in the long term. The company predicts that the effective addressable market for EDGE AI chips could increase to $12.9 billion, a percentage of 18% per year over the next five years. The company also sees it as it is in a position to grow at a faster pace than addressable markets, thus gaining greater market share.
But don't be surprised to see Ambarella maintaining that amazing level of growth for much longer. Estimates from market research from Market.US show that Edge AI Processor Market revenues could rise 20 times over the next decade. That growth is driven by faster processing that edge AI processors can do. This is why adoption in autonomous vehicles and industrial applications is rising.
Buy now with attractive reviews and increased growth potential
Ambarella's shares appeared at nearly 17% after releasing its latest quarter results on August 28th. Still, even after that profit, the stock will still trade with less than 10 times sales. The company has demonstrated that it can record stronger topline growth, and analysts are also upgrading expectations for that score.
Estimates of AMBA revenue for current fiscal year data by YCHARTS.
However, considerable opportunities in the Edge AI market and Ambarella's ability to grab a bigger slice of this pie will help him surpass Wall Street's expectations once again. So, this lesser known AI stock is worth buying as this impressive growth is likely to be rewarded with a higher stock price.
Should I invest $1,000 in Ambarella now?
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The harsh Chauhan has no position in any of the stock mentioned. Motley Fool has a job at Nvidia and recommends. Motley Fools have a disclosure policy.
Disclaimer: Information only. Past performance does not indicate future results.
