AMBA — Q2 2026 Financial Report Analysis

Overview

Ambarella designs chips but doesn't manufacture them. Its chips process video and run AI models inside cameras, cars and robots. In the quarter ended July 31, 2026, which is the second quarter of its fiscal year 2027, revenue rose 13.2% to $108.1 million from $95.5 million a year earlier. Management attributes the growth to "higher product unit shipments from our high priced AI inference processors". AI inference means running an already-trained AI model on the device itself. The GAAP net loss (the official accounting result) narrowed to $6.7 million, or $0.15 per share, from $20.0 million, or $0.47 per share. However, $9.0 million of that improvement is a one-time accounting credit and does not come from selling more chips. Gross margin, the share of revenue left after the cost of making the chips, slipped again, to 57.7% from 58.9%. Cash used by operations was $25.9 million for the first half because the company built up inventory.

At a glance

• Revenue of $108.1M, up 13.2% year over year and 7.7% from Q1's $100.4M. Sales are growing, and they landed right on the midpoint of the $105–111M range management had guided.
• A one-time $9.0M credit cut reported R&D expense. Without it, the GAAP net loss would have been about $15.7M instead of $6.7M. Ambarella is still losing money on a GAAP basis.
• Inventory rose 47% in six months, from $52.2M to $76.9M. Building inventory is the main reason operating cash flow went from +$20.3M in the first half of last year to −$25.9M in this year's first half.

Key metrics

First-half figures (six months to July 31, 2026): revenue of $208.5M (+14.9%), GAAP gross margin of 58.0% (59.4% a year earlier), GAAP net loss of $24.8M (−$44.3M a year earlier), and non-GAAP EPS of $0.30 ($0.22 a year earlier).

What drove the quarter

Revenue: more units of the more expensive AI chips. The 10-Q gives one reason for growth: more units shipped of its "high priced AI inference processors". CEO Fermi Wang said edge AI revenue (AI that runs on the device rather than in a data center) hit a record. He described growth from Q1 as "balanced" between the auto and IoT (Internet of Things, meaning connected devices such as security cameras) markets, with "very strong growth from our 5nm CV75 and CV72 AI SoCs". An SoC, or system-on-a-chip, puts the processor, video engine and AI accelerator on a single piece of silicon. The filing does not split revenue by end market in dollars, so how much came from cars versus cameras can't be measured from the 10-Q.

Where the chips are billed is spreading out. Revenue billed to Taiwan, which mostly passes through distributor WT Microelectronics, fell 4.4% to $65.1M. Every other region grew:

WT's share of revenue dropped to 60.2% from 71.3% a year ago. Japanese distributor Hakuto now also counts as a 10%-plus customer, at 11.0%; a year ago WT was the only one. Ambarella still depends on a few intermediaries, but less heavily than a year ago. Its new seven-year agreements with distributor Macnica and engineering firm Capgemini are part of a push to sell through more partners.

Gross margin: newer chips cost more to make. The 10-Q says gross margin fell "primarily due to higher manufacturing costs associated with advanced process technologies, partially offset by favorable product mix." Ambarella's newest chips are made on 5-nanometer manufacturing processes, which cost more per wafer. So the products driving revenue growth are also the ones squeezing margin. Non-GAAP gross margin came in at 59.3%, in the lower half of the 59.0–60.5% range guided in May. That is the second quarter in a row below a year earlier: Q1 was 59.9% against 62.0%.

Operating expenses: lower partly because of fewer staff. R&D fell $9.2M year over year. The filing breaks that into the $9.0M credit (below) plus about $2.8M less personnel cost "as a result of a reduction in headcount". Those reductions were partly offset by about $2.6M more engineering spending on "the progress and number of chips in development". SG&A (selling, general and administrative costs) rose 8.1% to $20.0M, mostly from about $1.8M more marketing and professional-services spending.

What the headline numbers hide

• The smaller GAAP loss is mostly the one-time credit. A customer had paid Ambarella $13.5M in advance to fund a development project. Ambarella terminated the project on May 12, 2026, refunded $4.5M, and recorded the remaining $9.0M as a reduction of R&D expense. This is an accounting entry, not a recurring saving. Without it, the operating loss would have been about $17.1M (−15.9% of revenue), compared with −$22.0M a year ago. That is still an improvement, but far smaller than the headline −7.5% margin suggests. The company excludes the credit from its non-GAAP figures, so the non-GAAP EPS of $0.18 is not inflated by it.
• The GAAP/non-GAAP gap is mostly stock pay. Non-GAAP results exclude $22.7M of stock-based compensation (employees paid in shares rather than cash) and $1.2M of acquisition-related amortization, and also add back the $9.0M credit. Stock compensation is a real cost to shareholders because it dilutes them: the diluted share count rose 3.4% year over year to 44.0M. It is falling as a share of revenue, from 26.4% to 21.0%, which is a real improvement.
• Cash conversion is poor this half. First-half operating cash flow was −$25.9M, compared with a GAAP net loss of −$24.8M and non-GAAP profit of $13.3M. A year earlier it was +$20.3M. The 10-Q blames "increased inventory purchases". Inventory went from $52.2M to $76.9M, with work-in-progress up from $35.5M to $52.8M. At the same time, accounts payable (bills owed to suppliers) fell from $54.0M to $26.5M, so Ambarella paid for that inventory rather than delaying payment. Inventory growing 47% in six months while quarterly revenue grows about 8% is either a bet on the guided Q3 ramp or a buffer against supply problems. The filing doesn't say which. If Q3 sales disappoint, this is the line to watch for write-downs.
• Receivables are fine. Accounts receivable (money customers owe) actually fell to $37.4M from $39.2M in January, so revenue is not being pulled forward through looser payment terms.
• The balance sheet has no debt. Cash and marketable securities were $272.3M, compared with $277.8M at the end of Q1 and $312.6M at fiscal year-end in January. There are no borrowings. A $50M buyback was authorized from July 1, 2026, but no shares were bought in Q2.

Takeaway: Ambarella's growth story is holding: sales of its pricier AI chips lifted revenue 13% and widened the customer base beyond its Taiwan distributor. But the economics behind it are weaker than the headline loss suggests. Gross margin is still slipping as production moves to costlier 5nm chips, a one-time $9.0M credit accounts for most of the smaller GAAP loss, and an inventory build turned first-half operating cash flow negative.

Outlook

Guidance for Q3 of fiscal 2027 (quarter ending October 31, 2026):

The revenue midpoint of $119.5M would be 10.5% above Q2, a faster increase than the 7.7% Q1-to-Q2 step. That fits the inventory build, which suggests the company expects a larger Q3. The margin range is a bit narrower and slightly lower at the top than the 59.0–60.5% guided for Q2, so management isn't expecting the manufacturing-cost pressure to ease yet. Operating expenses are guided roughly flat, so most of any extra revenue should reach non-GAAP profit.

Our view: whether Ambarella can show a real GAAP profit depends on two things. Its newer, pricier chips need to lift revenue faster than their higher manufacturing cost pulls down margin, and the 47% inventory build needs to turn into Q3 sales. Things to check in the Q3 report: whether revenue lands in the $115–124M range; whether inventory starts to fall, which would show the build was for real orders; whether non-GAAP gross margin holds near 59%; and whether the new indirect sales channels keep pushing revenue outside Taiwan. The comparison with a year ago will no longer include the $9.0M credit, so Q3 will give a cleaner read on the underlying loss.

Source: Ambarella Form 10-Q for the quarter ended July 31, 2026 (filed September 4, 2026), and its Q2 fiscal 2027 earnings release (Exhibit 99.1 to the Form 8-K filed September 3, 2026).