Ambarella, Inc. (AMBA.US) reported strong performance but still experienced a sharp decline, with Wall Street investment banks supporting it against the market trend.

Despite Ambarella, Inc.'s (AMBA.US) performance in the third quarter of fiscal year 2026 exceeding expectations, its stock fell by about 19% to $73.89 at the close on Wednesday. However, this performance received positive reviews from analysts. Morgan Stanley maintained a "hold" rating on the stock with a price target of $96, noting another strong quarter for its Internet of Things (IoT) business. Analysts led by Joseph Moore stated, "The momentum of Edge-AI development remains strong, driven by IoT technology, and its robust operational leverage is evident, despite some profit margin pressure from product mix shift. We remain optimistic about the long-term prospects of the company's automotive business and believe in its technical strength, but IoT is expected to drive its growth for now." Analysts noted that, as expected, IoT played a major role in this quarter, with significant impact. This is partly due to portable video and other areas, where multiple categories such as action cameras, wearable devices, and panoramic systems continue to show strong growth. According to analysts, the company's gross margin was lower than expected based on guidance, as more high-volume customers are expected in the fourth quarter. This led to a decrease in gross margin, but Ambarella, Inc. emphasized its primary goal of increasing total gross profit. Analysts pointed out that management is willing to consider accepting lower gross margins for specific sales opportunities, but they are still committed to achieving the company-wide target range of 59% to 62%. Analysts stated that while the company expects mixed headwinds to persist, higher revenue and stable operating expenses are forming a solid operational leverage effect. Analysts predict that despite the decrease in gross margin, operating profit in the fourth quarter will still increase. Looking ahead, Moore and his team stated, "Ambarella, Inc. believes that the IoT product cycle will continue to show strong momentum, with market demand expanding from security to portable video, drones, and early sectors such as Siasun Robot & Automation. We expect these edge artificial intelligence categories to continue to expand, driving steady growth in IoT in the next year, when we expect IoT growth to surpass that of the automotive industry." Needham maintained a "buy" rating on Ambarella, Inc. stock with a target price of $100. Analysts led by Quinn Bolton stated, "Ambarella, Inc. has once again achieved performance improvement and growth due to the increasing demand for high-end artificial intelligence applications. Our key takeaways include: 1) strong fourth quarter fiscal year 26 revenue guidance, with fiscal year 26 revenue expected to increase by 36%-38% year-on-year (previously expected to increase by 31%-35%); 2) The net gross margin in the fourth quarter was lower than expected, due to the product mix shifting towards higher volume customers. Despite the decline in gross margin, we have raised our expectations for revenue, operating profit, and earnings per share in the fourth quarter." As described by analysts, other key findings include management stating three favorable factors as high-end artificial intelligence applications expand, and the company securing over ten design orders in the automotive and IoT application areas in the third quarter of fiscal year 2026.