Ambarella's Q4 2026 Earnings Call Reinforces Growth Deceleration and Concentration Concerns

What happened

Ambarella has released its Q4 2026 earnings call transcript, detailing financial results and management's outlook for the edge-AI chipmaker. Revenue for the quarter aligned with prior guidance at $97-103 million, but non-GAAP gross margin hovered near the lower end of the 59.0-60.5% range, reflecting persistent pricing pressure from high-volume IoT customers. Management emphasized edge-AI's dominance at over 80% of sales yet admitted that customer concentration remains acute, with WT Microelectronics still accounting for more than 70% of revenue. Initial hints about FY2027 point to revenue growth slowing to low-teens, well below the 20%+ needed to sustain the bullish narrative and confirming fears of an IoT normalization phase. This outcome underscores DeepValue's warning that flattish margins and lack of diversification expose the stock to downside risk as expectations reset.

Implication

The Q4 results and management commentary validate DeepValue's bear-case concerns, indicating that revenue growth is decelerating faster than priced in, with IoT normalization outpacing automotive and edge-infrastructure ramps. Persistent concentration on WT Microelectronics above 70% of revenue creates a single point of failure, amplifying volatility if any large customer reduces orders. Flattish gross margins near 59-60%, despite 5nm product adoption, suggest limited pricing power and operating leverage, delaying GAAP profitability. Capital preservation is advisable until WT concentration drops below 60% or concrete FY2027 diversification milestones emerge, as the stock lacks a margin of safety at current levels. Consider trimming positions above $85 or waiting for a pullback to the $45 attractive entry before reassessing, given the high probability of growth reset in the next 6-12 months.

Thesis delta

The new information solidifies the sell thesis by confirming that growth deceleration and customer concentration risks are materializing, as hinted in DeepValue's base and bear scenarios. No positive shift occurs; instead, the likelihood of the bear case (30% probability, $50 implied value) increases due to weak FY2027 visibility and unchanged margin trends. Investors should maintain a cautious stance, prioritizing downside protection over upside capture until diversification efforts yield tangible results.