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Computer vision, the processing of video images to extract information, is emerging as an important new theme for the semiconductor industry, asserts Rob DeFrancesco, growth stock expert and editor of Tech-Stock Prospector.
The technology will be a key enabler for smart robotics, next-generation IP security cameras, industrial Internet of Things (IoT) use cases and autonomous driving.
Ambarella (AMBA) is one semiconductor maker to watch in this space, as the company is set to make a big splash with CV1, its dedicated computer vision chip. Today, most tasks involving early-stage computer vision technology are handled with a combination of programmable chips.
While lacking the design flexibility of more general purpose approaches, dedicated computer vision chips offer significant opportunity because they provide the best performance per watt, says Morgan Stanley. Stifel sees the overall computer vision market expanding at a 30% CAGR, potentially reaching $3 billion or more by 2021.
Ambarella has been working on its computer vision chip for the past four years. As part of the development process, the company in 2015 acquired VisLab, a pioneer in computer vision and intelligent control systems for automotive and other commercial applications.
VisLab made a splash with “Porter,” an autonomous vehicle that completed a 13,000-kilometer trip from Italy to China in 2010.
Ambarella management believes CV1 will be a significant competitive differentiator, with the biggest opportunities in autos and IP security cameras.
Ambarella is already a leading provider of low-power HD and Ultra HD video image processing and video compression solutions. Its chips can be found in GoPro (GPRO) cameras as well as consumer and commercial drones.
While automotive use cases offer ample upside potential, computer vision will also be applied to IP security cameras to enable smart detection, people recognition and object classification. For example, smart cameras can distinguish between animals and humans in their view.
Morgan Stanley believes Ambarella now offers a “free call option” on computer vision, as Wall Street estimates for next year contain a minimal contribution from the new technology.
The firm maintains its base case price target of $60, but has a bull case target of $115 based on the argument that Ambarella’s computer vision claims represent a “significant advancement.”
Ambarella faces near-term operating challenges (mainly related to drone demand), but the promising long-term outlook for CV1 means the stock has an upside catalyst on the horizon.
Rob DeFrancesco is founder of Tech-Stock Prospector.
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