Ambarella (AMBA) Q2 2026: IoT Powers 50% Revenue Surge, Edge AI Breadth Drives Guidance Hike
Ambarella’s edge AI portfolio delivered a 50% revenue leap, fueled by broad-based IoT acceleration and surging demand for high-value applications in portable video, robotics, and infrastructure. Management raised full-year guidance sharply as design-win momentum and average selling price expansion signal durable growth, but auto remains a longer-term lever. Investors now face a business pivoting to IoT scale, with operational discipline and product breadth at the center of the growth story.
Summary
- IoT Outpaces Auto: Edge AI adoption in IoT endpoints is now the primary growth engine, with auto lagging on design cycles.
- Product Breadth Expands: New design wins in portable video, robotics, and edge infrastructure diversify revenue streams.
- Guidance Lifted: Raised outlook reflects confidence in both unit growth and higher average selling prices across segments.
Performance Analysis
Ambarella posted a standout quarter, with revenue climbing nearly 50% year-over-year and 11% sequentially, driven by broad-based strength in IoT edge AI (artificial intelligence at the endpoint device) applications. IoT now accounts for more than 75% of total revenue, underscoring a strategic shift from the company’s long-standing automotive focus. This performance was led by portable video, robotics, and infrastructure wins, with portable video—spanning action, panorama, and body-worn cameras—emerging as a particularly high-growth, high-ASP (average selling price) category.
The automotive segment grew in the mid-single digits, but remains a minority contributor, reflecting longer design cycles and slow OEM (original equipment manufacturer) decision-making. Gross margin landed at the low end of guidance at 60.5%, pressured by product mix, while operating expenses were well-controlled, coming in below the midpoint of guidance. Cash and marketable securities increased, reflecting improved operating cash flow, though receivables days outstanding rose, a point to watch as volume scales. Free cash flow remained positive.
- IoT Drives Growth: IoT revenue grew in the low teens sequentially, now representing the clear majority of business.
- ASP and Unit Growth Both Contribute: Management attributes roughly half of revenue growth to higher unit shipments and half to ASP increases, signaling quality of demand.
- Product Mix Shifts Margin: Lower gross margin reflects higher mix of new, high-volume products with initially lower profitability.
Ambarella’s performance is increasingly decoupled from auto cyclicality, with IoT and diversified edge AI applications providing resilience and upside. The company’s ability to convert design wins into volume shipments is translating into sustained financial momentum, even as auto remains a multi-year play.
Executive Commentary
"The breadth of our edge AI applications we are successfully addressing is expanding. As seen with our ongoing ramp in a variety of portable video applications and the anticipated production ramp for robotic aerial drones and edge infrastructure."
Dr. Fermi Wong, President and Chief Executive Officer
"Our estimate is that that growth is roughly 50-50 between ASP and unit growth."
John Young, Chief Financial Officer
Strategic Positioning
1. IoT as the New Core Engine
Ambarella’s business model is now anchored in IoT edge AI, with applications ranging from portable video to robotics and infrastructure. The company’s unified hardware and software platform enables rapid customer onboarding and leverages engineering resources across use cases, supporting both operational efficiency and scalability.
2. Expanding Design-Win Pipeline
Design wins in emerging markets are accelerating, including the Insta360 8K drone (CV5 SoC, system-on-chip), Honeywell’s security cameras (CV25 SoC), and a global networking customer’s edge AI appliance (N1655 SoC). Each win validates Ambarella’s AI capabilities and expands its total addressable market, with the infrastructure segment alone forecast to grow from $125M to $500M over five years.
3. ASP Expansion Through Product Innovation
Average selling price is rising as customers transition to advanced 5nm AI SoCs, particularly in high-value applications like portable video and infrastructure. This not only boosts revenue but also positions Ambarella as a premium supplier, differentiating on power efficiency, AI performance, and integration.
4. Auto: Long-Term Optionality, Not Near-Term Driver
Despite continued investment and OEM engagement, auto design cycles remain slow, with meaningful revenue impact deferred until major wins materialize—likely post-2027. In the interim, Ambarella is allocating more resources to IoT, where design cycles are shorter and returns more immediate.
5. Operational Discipline and Customer Support
Operational rigor is evident in inventory management, customer engagement, and field engineering scaling. Management conducts monthly inventory reviews with customers to avoid demand pull-ins and is expanding field engineering to support the growing and diverse IoT customer base, leveraging the unified platform for efficiency.
Key Considerations
Ambarella’s Q2 marks a strategic inflection point, with IoT edge AI now the dominant growth lever. The company’s execution across multiple verticals and its ability to command higher ASPs position it for continued outperformance, but the transition brings new challenges in market mix, operational complexity, and competitive dynamics.
Key Considerations:
- IoT Market Momentum: Portable video and robotics are outpacing legacy security, shifting the revenue mix and requiring continued product innovation.
- Margin Management: Product mix pressure on gross margin will need to be offset by scale and continued ASP expansion.
- Auto Remains a Long Game: Major auto wins are unlikely before 2027, so near-term growth depends on IoT execution.
- Customer Diversification: While Insta360 is a major portable video customer, Ambarella is building a broad base across seven product lines and multiple verticals.
- Platform Leverage: The unified hardware/software stack allows for efficient scaling of engineering support and faster customer adoption.
Risks
Key risks include ongoing margin pressure from product mix, potential concentration risk in large IoT customers, and the slow realization of automotive design wins. Seasonality in consumer-driven segments could create volatility, while competitive threats and potential industry consolidation add uncertainty. Management’s raised guidance reflects confidence, but execution across a broader, less predictable IoT landscape will be tested as the business scales.
Forward Outlook
For Q3 2026, Ambarella guided to:
- Revenue of $100 to $108 million, with IoT up mid-teens and auto up mid to high single digits sequentially
- Non-GAAP gross margin of 60% to 61.5%
- Non-GAAP operating expense of $54 to $57 million, reflecting higher development costs
For full-year 2026, management raised guidance:
- Revenue growth of 31% to 35%, or ~$379 million at the midpoint
Management highlighted:
- Strong order book and broadening design-win momentum
- Both unit growth and higher ASPs as key drivers of the outlook
Takeaways
Ambarella’s Q2 confirms a business pivot to IoT-driven edge AI, with design-win breadth and rising ASPs fueling a guidance raise. Execution discipline and platform leverage are supporting the transition, but auto remains a deferred upside lever. Investors should focus on the sustainability of IoT growth, margin recovery, and the pace of new design wins in non-security verticals.
- IoT Leadership: Portable video, robotics, and infrastructure now anchor the growth story, with security still contributing but no longer dominant.
- Margin and Mix: Product mix will pressure gross margin in the near term, but ASP gains and operational scale can offset this over time.
- Auto as Optionality: Major auto wins are a 2027+ event, so sustained IoT execution is essential for maintaining momentum.
Conclusion
Ambarella’s Q2 marks a decisive shift to IoT-led edge AI growth, with broad-based design-win momentum and rising ASPs supporting a bullish outlook. The transition brings new operational and market risks, but management’s execution and product roadmap position the company well for continued leadership in edge AI silicon.
Industry Read-Through
Ambarella’s results signal a structural shift in the edge AI semiconductor landscape, with IoT and endpoint AI applications outpacing traditional auto and security verticals. The rising importance of portable video, robotics, and infrastructure points to expanding use cases and faster adoption cycles, benefiting suppliers able to deliver high-performance, low-power AI SoCs. Competitors should note the increasing premium on platform flexibility, customer support, and ASP expansion as differentiators. The edge AI market is broadening, and the pace of innovation across diverse endpoints is accelerating, challenging legacy players to adapt or risk obsolescence.