Ambarella May Be the Latest Casualty in the China Trade War

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Ambarella Inc. (NASDAQ: AMBA) shares saw a big drop early on Tuesday following an update from the Chinese trade war. The U.S. Department of Commerce added 28 Chinese organizations to its blacklist for engaging in or allowing activities contrary to U.S. foreign policy interests. As it turns out, a couple of these blacklisted companies are a huge stream of Ambarella’s revenue.

The Commerce Department also noted that these latest additions have been implicated in human rights violations and abuses against Muslim minorities in the country’s far-western region of Xinjiang.

The blacklisted companies include video surveillance giants Hikvision and Dahua, as well as artificial intelligence firms Megvii Technology and SenseTime.

Stifel Nicolaus reiterated a Hold rating on Ambarella but cut the price target to $54 from $61, implying downside of 5.6% from the most recent closing price of $57.22. Stifel analyst Tore Svanberg estimates that a couple of these Chinese firms represent about 15% of Ambarella’s total revenue, or 25% of its security camera revenue.

In its report, Stifel further detailed:

While we believe Ambarella may be able to continue to ship product to these customers due to a significant R&D presence outside the U.S., we expect the companies will struggle to meet the full bill of materials and are likely to begin working through inventory that has been built over the last several quarters.

Shares of Ambarella traded down about 11% to $51.09 on Tuesday, in a 52-week range of $30.00 to $67.15. The consensus price target is $58.22.


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