Nvidia stock has been certainly one of the largest winners of the factitious intelligence (AI) revolution prior to now couple of years, clocking remarkable gains of nearly 800% over the past two years on account of the red-hot demand for its data center graphics cards, however the past three months have been difficult for the chipmaker.
Shares of the semiconductor giant are down 1% over the past three months. That is a bit surprising considering that Nvidia delivered an excellent set of results during this era that beat Wall Street’s expectations. What’s more, Nvidia’s guidance was also higher than what analysts were searching for.
Nonetheless, concerns about Nvidia’s ability to sustain its outstanding growth, its valuation, and the short-term margin pressure that will probably be created by the ramp-up of its latest generation of Blackwell processors appear to be weighing on the corporate’s stock price. Meanwhile, two other little-known chip corporations have received a giant boost prior to now three months due to the positive impact of AI on their businesses: Ambarella(NASDAQ: AMBA) and Lumentum Holdings(NASDAQ: LITE).
While Ambarella stock has jumped 25% prior to now three months, Lumentum has appreciated nearly 23%. Their gains have been higher than what Nvidia has delivered during this era, and the great part is that the AI-focused growth drivers of each of the smaller chipmakers are only kicking in.
Let’s take a look at how AI is popping out to be a catalyst for Ambarella and Lumentum.
The chips that Ambarella designs are deployed in automotive and Web of Things (IoT) applications. The corporate is primarily known for its computer vision chips that process images and video, and it’s now finding applications in the sphere of AI as well. In keeping with one estimate, the dimensions of the AI computer vision processor market could grow from $17.2 billion in 2023 to $45.7 billion in 2028 due to the growing demand from multiple verticals similar to automotive, security and surveillance, and consumer electronics applications.
Ambarella’s product portfolio already includes chips able to processing AI workloads in these applications. As an example, the corporate’s CV5 processor that is based on a sophisticated 5-nanometer (nm) process node can run AI-based algorithms in automotive cameras, consumer cameras, and even robotics. Not surprisingly, the corporate is witnessing a rise in demand for this processor.
CEO Fermi Wang remarked on the corporate’s November 2024 earnings conference call that its latest higher-priced AI inference processors, similar to the CV5, are driving record AI revenue and in addition contributing toward a better average selling price (ASP). The great part is that Ambarella expects the robust demand for CV5 to proceed in fiscal 2026, which can begin next month. Moreover, the corporate estimates that the demand for its CV7 family of AI vision processors will pick up from the brand new fiscal 12 months.
More importantly, this solid demand is translating into outstanding growth for Ambarella. Its revenue within the third quarter of fiscal 2025 (which ended on Oct. 31, 2024) increased a formidable 63% 12 months over 12 months to $82.7 million. The chipmaker also swung to an adjusted profit of $0.11 per share from a lack of $0.28 per share within the year-ago period.
Ambarella’s fiscal Q4 guidance of $78 million would translate right into a 51% increase in its revenue from the year-ago quarter. The corporate is on course to complete fiscal 2025 with total revenue of $279 million, which can be a 23% improvement from the previous fiscal 12 months. Its loss is predicted to shrink to $0.30 per share from $0.83 per share in fiscal 2024.
As the next chart shows, Ambarella’s top and bottom lines are on course to enhance further over the following couple of fiscal years, with the corporate expected to report an adjusted profit per share in fiscal 2027.
The general AI computer vision market is about for impressive growth over the following three years, so it won’t be surprising to see Ambarella deliver the healthy growth that Wall Street is expecting from it. The corporate could give you the chance to sustain its positive momentum for an extended period as well because it claims to have an automotive revenue pipeline of $2.2 billion through fiscal 12 months 2031.
Should you throw within the prospects of AI computer vision processors in other areas similar to consumer cameras and security applications, Ambarella can have enough room to grow its business significantly in the long term.
The growing demand for high-speed data transmission in AI servers is driving robust growth within the networking equipment market. In keeping with Morningstar, the spending on generative AI networking equipment could increase at an annual rate of 34% between 2023 and 2028, generating $34 billion in annual revenue at the top of the forecast period.
Lumentum Holdings is already benefiting from this trend, witnessing a pleasant turnaround in its financial performance last quarter. The corporate’s revenue in the primary quarter of fiscal 2025 (which ended on Sept. 28, 2024) increased 6% 12 months over 12 months to $337 million. While that won’t seem very impressive at first, investors should note that Lumentum’s top line was down 23% in fiscal 2024 owing to soft demand from the cloud and networking and industrial segments.
Nonetheless, things have began changing for the higher due to AI. Its cloud and networking revenue jumped 23% 12 months over 12 months in fiscal Q1 2025, offsetting the weakness in the economic business. With cloud and networking now producing nearly 84% of Lumentum’s top line, this business is about to drive stronger growth for the corporate.
Lumentum points out that its cloud customer base is growing with the addition of latest hyperscale customers which might be placing orders for its lasers which might be utilized in fiber-optic cables to enable high-speed data transmission in AI servers. What’s more, Lumentum is busy expanding its manufacturing capability in order that it may fulfill more orders.
These favorable developments explain why Lumentum’s revenue estimate of $390 million for the present quarter would again be an improvement of 6% over the prior 12 months. Even higher, analysts predict the corporate’s growth rate to enhance because the 12 months progresses. Consensus estimates are projecting a 17% jump in Lumentum’s revenue for fiscal 2025 to $1.59 billion, which is predicted to be followed by even stronger growth in the following fiscal 12 months.
The robust top-line growth is predicted to filter right down to the underside line, with Lumentum’s earnings expected to leap by 56% in the present fiscal 12 months to $1.58 per share followed by healthy growth in the following couple of years as well.
It won’t be surprising to see the market rewarding this tech stock with more upside due to its improving earnings power. That is why it’s not too late for investors to purchase Lumentum Holdings as its cloud and networking business seems set for higher times ahead due to AI.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Nvidia. The Motley Idiot recommends Lumentum. The Motley Idiot has a disclosure policy.
