Ambarella - Earnings Call - Q2 2026

Executive Summary

• Ambarella delivered Q2 FY26 revenue of $95.5M, up 49.9% YoY and 11.2% QoQ, with non-GAAP EPS of $0.15; GAAP gross margin was 58.9% and non-GAAP gross margin 60.5%.
• The company guided Q3 FY26 revenue to $100–$108M and raised FY26 revenue growth to 31–35% (~$379M midpoint), citing breadth in edge AI demand (portable video, drones, edge infrastructure) and higher ASPs on 5nm AI SoCs.
• Versus Wall Street, Q2 beat on revenue ($95.5M vs $90.0M*), beat on EPS ($0.15 vs $0.054*), but EBITDA was below consensus (actual approximately -$18.7M* vs $7.3M*).
• IoT comprised slightly over 75% of Q2 revenue and grew in the low teens; automotive grew mid-single digits; WT Microelectronics represented 71% of revenue (distribution concentration risk).
• Management sees continued edge AI momentum across portable video and robotics, while auto autonomy wins are lower frequency and longer time to revenue; seasonality expected into Q4 due to consumer cycles.

What Went Well and What Went Wrong

What Went Well

• Strong top-line and profitability: revenue above high end of prior guide ($95.5M vs $86–$94M), non-GAAP EPS positive ($0.15), cash and marketable securities rose to $261.2M.
• Broadening edge AI applications: production ramps in portable AI video, first robotic aerial drone win (Insta360), and first edge infrastructure win (N1 SoC), supporting higher ASPs.
• Raised FY26 outlook and record trajectory: FY26 revenue growth increased to 31–35%, with Q3 and FY26 midpoints implying all-time record revenue levels; management emphasized market leadership with 36M edge AI processors shipped.

What Went Wrong

• Margin mix and EBITDA: non-GAAP GM at low end of guide (60.5% due to product mix), and EBITDA below consensus (S&P), reflecting ongoing GAAP losses (GAAP net loss $20.0M; GAAP EPS -$0.47).
• Segment concentration and distributor exposure: WT Microelectronics accounted for 71% of revenue; IoT breadth is positive but introduces consumer-cycle seasonality and potential inventory risks (monitored via monthly checks).
• Automotive autonomy cadence: OEM decisions remain lower frequency with delays; adoption trends skew to lower-cost L2+ safety features, elongating time-to-revenue versus faster-moving IoT markets.

Transcript

Speaker 8

Hello and welcome to Ambarella second quarter fiscal year 2026 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask the question during the session you will need to press Star 11 on your telephone. You will then hear an automatic message advising your hand is raised. To withdraw your question, please press Star 11 again. I would now like to turn the conference over to Louis Gerhardy, Vice President of Corporate Development. You may begin.

Speaker 1

Thank you, Tawanda, and good afternoon. Thank you for joining our second quarter fiscal year 2026 financial results conference call. On the call with me today is Dr. Fermi Wang, President and CEO, and John Young, CFO. The primary purpose of today's call is to provide you with information regarding the results for our second quarter fiscal year 2026. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth, and demand for our solutions, among other things. These statements are based on currently available information and subject to risks, uncertainties, and assumptions. Should any of these risks or uncertainties materialize or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements, and we're under no obligation to update these statements.

These risks, uncertainties, and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we file with the SEC. Before starting the call, I'd like to summarize our planned investor events for our third fiscal quarter. On September 3rd, we'll participate in Citi's Global TMT Conference in New York City. On September 4th, we'll host KGI Securities Bus Tour in Santa Clara. On September 16th, we'll host Bernstein 7th Annual West Coast Semiconductor Bus Tour at our office in Santa Clara. On September 18th and 19th, Craig Hallum will host us on a Midwestern NDR. Access to our second quarter fiscal year 2026 results, press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the Investor Relations page of our website.

The content of today's call, as well as the materials posted on our website, are Ambarella's property and cannot be reproduced or transcribed without our prior written consent. Fermi will now provide a business update for the quarter. John will review the financial results and outlook and will be available for your questions after that.

Speaker 2

Fermi, thank you Louis, and good afternoon. Thank you for joining our call today. Our strong momentum continued in our second quarter with revenue of $95.5 million, increasing 11% sequentially, above the high end of our prior guidance range of $86 to $94 million. The second quarter results represent the fifth consecutive quarter of record AGI revenue. Furthermore, I am proud to say the midpoint of our new third quarter and the full fiscal year 2026 revenue guidance range represents all-time record quarterly and fiscal year total revenue for Ambarella. In our May 29 earnings call, we increased our fiscal 2026 revenue growth estimate to a range of 19% to 25%, or approximately $348 million at the midpoint.

With a strong order book as well as our expectation for both our total unit ship and our average selling price to increase in fiscal 2026, we are increasing our fiscal 2026 revenue growth estimate to a range of 31% to 35%, or approximately $379 million at the midpoint. Needless to say, it is a very exciting time for Ambarella. Fundamentally, after a multi-year period of significant AGI R&D investment, our broad product portfolio enables us to address a rising breadth of AGI applications. This increased breadth not only drives our overall unit demand, but we continue to see very strong demand for our new 5nm AI SoCs in both our existing and emerging AGI markets, which is driving our firm-wide average ASP higher.

I would like to double click on the rising breadth of AGI applications I mentioned and focus on three applications we see as rapidly emerging for us: Portable Video, Robotic Aerial Drones, and the Edge AI infrastructure. Our HAI revenue began in the enterprise security market more than five years ago and was followed by an incremental HAI application in the smart home, automotive safety, and the telematics market, all of which are continuing their unique growth trajectories now this year. Layer on top is the rising demand for our Edge AI SoCs from the portable video market, including action cameras, panorama cameras, and the body-worn cameras. In addition to the portable video market, we expect to commence high volume shipment into the robotics market by the end of this fiscal year.

The unit volume in the robotic market is highly fragmented by application form factors and the customers, but our technology products and roadmap have enabled us to win one of the early high volume robotic applications. Partially autonomous aerial drones, portable video, and robotic boats represent new emerging AG applications in Ambarella's traditional market for IoT endpoints. Today we are also announcing our first win in the HAI infrastructure with our N1665H Gen AI SoC. This win is yet another example of the expanding breadth of our HAI business and I am encouraged by the interest in our Edge AI infrastructure roadmap from both new and existing customers. In the automotive autonomy market, the largest subset of the robotic market, we are actively bidding on OEM projects with the CV3 family of advanced 5nm central domain controllers for L2+ to L4 applications while offering significant lifetime revenue opportunities.

The lower frequency of award decisions, OEM program delays, and longer time to revenue are causing our other HAI applications to emerge more rapidly. Nevertheless, we remain highly focused on developing this business and we will provide updates on our progress as wins occur. I will now describe some representative customer engagement during the quarter, beginning with two key customer design wins that validate our future vision and strategy in a rapidly growing robotic drone market. Arash Vision, also known as Insta360, launched the world's first 8K 360-degree drone on this new Anti Gravity brand, powered by our CV5 AI SoC. This drone features dual lenses on both the top and the bottom, enabling 8K 360-degree video recording. The AI capacity in CV5 is fully utilized in this partially autonomous drone and our product portfolio will enable the drone market to evolve rapidly to higher levels of autonomy.

The Anti Gravity A1 is set to launch globally in January 2026. We are proud to see Arash has very successfully differentiated their diverse portable video and now robotic aerial drone portfolio with AI features such as neural net image signal processing, AI additive, and gestural control. Leveraging our AI SoCs, a majority of Arash's products are based on Ambarella SoCs and approximately 70% of Arash shipments are exported. In the emerging AI infrastructure market, a global networking customer is rolling out a compact on-premises network AI appliance with multimodal intelligence at the event level. Built on our N1665H Gen AI SoC, this appliance will add large language model powered natural language search and we were selected because of our power efficiency, network bandwidth saving, and low bill of material cost. This is a great example of one of the green shoots I mentioned earlier.

There are several other use cases being evaluated on our N1665H Gen AI SoC in our automotive safety ADAS and telematics business. I would like to share some key customer wins during the quarter. Samsara, a leading provider of commercial fleet telematics solutions, has introduced its AI multicam platform based on Ambarella's CV72AQ AI SoC. Samsara's AI multicam delivers live 360° visibility and real-time risk detection alerts on an in-cab monitor with up to 4 times auxiliary HD camera bit. It is a great design win for CV72AQ that demonstrates more camera inputs and advanced AI features on a single SoC. Audi is utilizing CV22FS for their left right e-mirror functions in the E5 model. Initially in the China market, it enables them to provide intelligent context adaptive view remote on highways, parking, turning, and lane changes with dynamic image processing and display enhancement functions.

Also in the newer market, BAIC Styleto H9 is utilizing CV22FS for their rear view electronic mirror. They note that AI-aided detection via camera input helps them cut down blind spots by up to 60% and a leading Chinese OEM will utilize our CV22 SoC for their 8-megapixel sensor designed specifically for the level 2 front ADAS functionality. A key capability they are enabling is small target detection at long range. In the Enterprise Security segment, Honeywell in India has launched their 50 Series security cameras in 3-megapixel and 5-megapixel resolutions based on our CV25 SoCs. India is a fast-growing market with a drive for made in India products, creating new customer opportunity for us in a small home market. One of our long-term customers in the U.S. has leveraged our H32 SoCs to build multisensory multimodal AI products available in retail outlets today.

They have built a nursery device integrating video monitoring, two-way intercom, white noise generator, and air quality sensor. They have also built a garage device that features carbon monoxide and heat detection, security camera, and the intercom functionality. Also in the smart home market, Netatmo launched their indoor camera advanced product that is built on H6L SoC in the European market. As you can see from these representative customer engagements, we continue to build design wins momentum in our existing AG Endpoints application and we continue to successfully address incremental AG applications such as robotic aerial drones and Edge infrastructure as the HAI market breadth expands. Having shipped more than 36 million HAI processors to hundreds of customers who have successfully ported hundreds of advanced customer AI models to our SoCs, there should be no doubt that Ambarella is a leader in AGI.

AGI is expected to represent about 80% of our total revenue this year. We are focusing exclusively on the unique needs of the AGI market and we continue a rapid pace of innovation. In conclusion, I would like to summarize the key points covered today. First, we deliver Q2 results above the high end of our prior guidance and we increase the midpoint of full year fiscal 2026 revenue guidance by 9%. Second, the breadth of our Edge AI applications we are successfully addressing is expanding as seen with our ongoing ramp in a variety of portable video applications and the anticipated production ramp for robotic aerial drones and Edge infrastructure. Third, the growth of our AI business is also occurring with our higher priced AG AI SoCs supporting the anticipated growth in our ASP.

Last, we are exclusively focused on the unique requirements of the AGI market and we remain an established AGI market leader who continues to innovate at the rapid pace now. John will now discuss the Q2 results and outlook in more detail.

Speaker 5

Thank you, Fermi. I'll now review the financial highlights for the second quarter of fiscal year 2026 ending July 31, 2025. I will also provide a financial outlook for our third quarter of fiscal year 2026 ending October 31, 2025. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation and acquisition-related expenses, adjusted for the impact of taxes. For fiscal Q2, revenue was $95.5 million, above the high end of our prior guidance range of $86 to $94 million, up 11.2% from the prior quarter and up 49.9% year over year. Sequentially, automotive revenue increased in the mid-single digits and IoT increased in the low teens, with IoT growth led by the adoption of Edge AI in portable video applications.

IoT in fiscal Q2 represented slightly more than 75% of our revenue and is spread across an increasing number of Edge AI applications. Non-GAAP gross margin for fiscal Q2 was 60.5%, at the low end of our prior guidance range of 60.5% to 66% due to product mix. Non-GAAP operating expense in Q2 was $53.4 million, below the midpoint of our prior guidance range of $52.5 to $55.5 million, primarily due to lower engineering-related costs associated with the timing of product development. Q2 net interest and other income was $2.2 million, compared to our prior guidance of $1.8 million. The increase was primarily from higher interest income. Q2 non-GAAP tax provision was approximately $200,000. We reported a non-GAAP net profit of $6.4 million, or $0.15 per diluted share in Q2. Now I'll turn to our balance sheet and cash flow.

Fiscal Q2 cash and marketable securities reached $261.2 million, increasing $1.8 million from the prior quarter and $41.4 million from the same quarter a year ago. Increased cash and marketable securities benefited primarily from operating cash flow associated with increased revenue, partially offset by increased expenditure on capital investments during the quarter. Receivables day sales outstanding increased from 31 days in the prior quarter to 40 days, while days of inventory decreased from 98 days to 85 days. Operating cash inflow was $5.5 million for the quarter. Capital expenditures for tangible and intangible assets were $4.1 million for the quarter. Free cash flow was $1.4 million. We had one logistics company representing 10% or more of our revenue. WT Microelectronics, a fulfillment partner in Taiwan that ships to multiple customers in Asia, came in at 71% of revenue for the second quarter.

I'll now discuss the outlook for the third quarter of fiscal year 2026. The breadth of our Edge AI business is expanding with a strong unit and average selling price outlook. As a result, in Q3 we forecast revenue in the range of $100 to $108 million, or $104 million at the midpoint. Sequentially, we expect mid to high single digit % growth in our automotive business, with our IoT business up in the mid teens. For fiscal 2026, we anticipate a revenue growth range of 31% to 35%. We expect fiscal Q3 non-GAAP gross margin to be in the range of 60% to 61.5%. We expect non-GAAP OpEx in the third quarter to be in the range of $54 to $57 million, with the increase compared to Q2 driven by new product development costs.

We estimate net interest and other income to be approximately $2 million, our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 43.7 million shares. Thank you for joining our call today, and with that I will turn the call over to the operator for questions.

Speaker 8

Thank you. Ladies and gentlemen, as a reminder to ask a question, please press Star one one on your telephone, then wait for your name to be announced. To withdraw your question, please press Star one one. Again, we ask that you limit yourself to one question and one follow-up. Please stand by while we compile the Q and A roster. Our first question comes from the line of Christopher Rowland with Susquehanna. Your line is open.

Hey, thanks so much for the question and congrats on a great quarter. For my first question, I think for years you guys pitched yourself kind of as the future of the company being automotive, automotive first. IoT at this point has just been an incredible outperformer. I think it outperformed auto by 4x this year. My question is, are you thinking about IoT differently now? Could there be a pivot in your business where you just double down spending around IoT versus auto, lean into the development of IoT versus auto and when might we get to a point where auto outperforms IoT or is this not the case just given the great interest in IoT?

Speaker 1

Thank you.

Speaker 2

Right, thank you for the question. I think the first part of the answer is like I said in our script, that we are continuing to focus on our Level 2 + Level 4 autonomous driving and we are working hard to continue the design wins there. I also pointed out that because other AG business, because of shorter design cycle and more available opportunity for us, we are making significant progress there. We are going to continue to focus on the AG market, including both autonomous driving as well as IoT. I want to point out that the fundamental hardware architecture between the AG for the IoT side and the autonomous driving side are identical architecture, our image processing pipeline, our CPU investment, even on the OS side, there is huge leverage between each two. From the OpEx expense side, the leverage is very strong.

Obviously, the go-to-market strategy from the marketing side and the sales side are different. We are going to continue to focus on those areas because I still believe in the long term autonomous driving can continue to drive our strength. As you can see in our announcement, we made significant progress on the AGI in the IoT side, which means we are going to put also more resources on this than before to continue to make progress and try to collect more market share in this particular market.

Thank you for that, Fermi. Just maybe back to the growth rates. Just a couple of things. First of all, would you expect Auto to outgrow IoT next year, or is this really going to be—you've talked about Auto and your CV3 wins, I think, ramping in 2027—would we have to wait for Auto to outperform at that point in time?

Speaker 1

Thank you.

Speaker 2

Right, so I think the auto will outperform IoT when we have major design wins with OEMs like the one that we talk about. BWK is 2.0. How do we want the design? Yes, I think in a 2027, 2020 timeframe we can see that that auto growth will be outperformed IoT. Right now I think in the foreseeable future that before we get any major design win from the automotive side, IoT will continue to have a very strong contribution to our income. In fact, that our current growth. You can see that the growth rate that we got from just IoT side significantly improved over the last few years. Yep.

Thanks and congrats.

Thank you.

Speaker 8

Please stand by for our next question. Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities. Your line is open.

Speaker 4

Yes, thanks for taking my question and congratulations on the great results and outlook. You know, they piqued my interest with the robotic aerial drones you mentioned. Insta360, is there, is this another trend of will there be multiple companies coming out with these solutions, and are there commercial applications like for deliveries?

Speaker 2

Yeah. First of all, I think for Insta360, their target market is commercial and consumer, and the volume is significant compared to what we have seen in the market outside DJI. Also, we are seeing definitely there's a market trend. A lot of different companies in different countries are focusing on this drone, particular drone application. Now that autonomous driving on a car side becomes more popular technology, widely available, you can imagine that the autonomous drones will become popular, and with that, that will enable many different possible applications in the near future. I think that potential trend is driving this. This is really consistent with the robotic trend that we are seeing in other applications. When the autonomy becomes popular and becomes possible, then the possible applications with those robots or drones become, you know, in the past was impossible, not definitely thinkable.

I think that we continue to engage multiple drone design wins activities, and we think that you're going to continue to see us report our success in this market.

Speaker 1

Kevin, it's Louis to kind of add on to that and maybe tie it into Chris's question. This is just a great example of you've got multiple high bandwidth sensors in a real time application, collecting data and driving a higher level of autonomy, higher and higher levels of autonomy. Just like in a vehicle, moving from L1 to L4, you see the same sort of trend beginning in the aerial drone market and of course other robotic spaces. It's all happening with the same underlying AI inference accelerator that's in common across all these markets, whether it's auto autonomy, auto safety and telematics, or any of these IoT markets. We leverage the technology across a lot of different applications.

Speaker 4

Right, thanks. Yeah, I guess your energy efficiency also is very useful if you're going to be flying something, it has to have a battery and efficiency is really important. You have so many exciting things happening with your new designs. I didn't hear much about your process technology or moving on to the next generation. Is that still on track of moving to an animator?

Speaker 2

Absolutely. In fact, we are, you know, our foundry, our factory partner continue to announce design wins. Not only give us a lot more confidence, but also our potential customers. I think that we will continue to work on the two nanometer projects and still remain target to take our customer to production in early 2027. Great, thank you.

Speaker 4

Congratulations again.

Speaker 2

Thank you.

Speaker 8

Our next question comes from the line of Quinn Bolton with Needham and Company. Your line is open.

Hey guys, this is Shadi on for Quinn Bolton. Congrats on the strong results. My first question is on the guidance. Your Q3 guide implies a seasonally down Q4, and given all the progress you guys have been making and the Edge AI tailwind, this feels somewhat conservative. Just want to get your thoughts and maybe the puts and takes as we think about Q4.

Speaker 2

Right. First of all, I think that the seasonality that we're guiding for this Q3 and Q4 is increasing the range compared to our previous year. I don't think that should be a surprise. If you look at that, a lot of the products, some of the products become driven by consumer cycles. That will definitely explain to you why we are seeing the seasonality based on our guidance.

Speaker 1

Got it.

That makes sense. My follow up is on the non security camera portion of the IoT business. How does Ambarella view this segment growing over the next few years? At what point might the non security segment surpass the security camera segment of the IoT business?

Speaker 2

Yeah, first of all, thank you for that question. I think that's important. Internally, we're looking at that also because, you know, all of the new application we announced today, none of that is really on the traditional security camera business. In fact, from the drone robots to the portable video to the Edge AI infrastructure, those are really the new market we have been talking about that we haven't shown much of result until this quarter. I think enterprise or the enterprise security and home security continue to be the combination, continue to be a large portion of compared to others. I think that we do see that the growth rate on the non-security portion of the business will continue to outpace the other side.

Speaker 1

Yeah, just to be clear, Shadi, our security business, we expect to continue to deliver very good growth. Now you have these portable video and some of the robotics markets and other things kicking in that, as you observed, are causing our other IoT business outside of security to contribute to very nice growth for us. Got it.

Thanks for the call and congrats on the progress.

Speaker 2

Thank you.

Speaker 8

Please stand by for our next question. Our next question comes from the line of Liam Farr with Bank of America. Your line is open.

Speaker 3

Hi, this is Liam. On behalf of Vivek, thank you very much for taking a question. There's been a lot of media reports recently about M&A and industry consolidation, and I was wondering if you're able to address kind of what role you expect industry consolidation to play and what your strategy looks like if you remain independent.

Speaker 2

Right. Obviously we cannot address that rumor. I think we just have no comment on that. However, I want to point out that with today's earnings call, you can see that again, the importance on the strategy side of AGI becomes so obvious in the market space. With that, we are probably one of few, maybe only one, shipping 36 million units of HAI SoC so far, which puts us as a leader in that market. With the combination, I really think that the rumor base is that our strength and our focus on AGI, and I think that's going to continue to play very well for us.

Speaker 3

Thank you. Just as a follow-up in terms of kind of going back to the IoT and auto side, clearly a strong quarter. What do the sustainability look like of these growth drivers through 2026, and where should we kind of expect more of an upside trajectory, more on the IoT or more on the auto side?

Speaker 2

Thank you. Right. On the auto side, I think we definitely continue to work hard to get a secure first design win on the Level 2+ and Level 3. That is really what pushes our growth trajectory beyond what we have with Automotive and with IoT. We are really growing significantly this year over last year, thanks to a contribution of a few products ramping up by our customers. We believe that growth will maintain, and we're going to provide the guidance for next year. We definitely believe that Automotive and both IoT and Automotive will continue their growth trend.

Speaker 1

Yeah, just to put a little more color on it, it's Louis. It's not like there's just a couple markets that are contributing to the growth. Five, six years ago it started for us in enterprise security and it was public and smart home. Then AI, video telematics and commercial fleets. Certain in-cabin emirs or driver monitoring. More recently in IoT you've had portable video, which is not just one thing, but it's, you know, body worn cameras, it's panorama cameras, it's action cameras. Now we're moving into robotics, initially with aerial drones expected to become significant. It's not really like, are you in a couple markets and are they going to, you know, static and how are they going to do. It's more about edge AI touching more and more different vertical applications. That's what's been happening to the business.

Speaker 8

Thank you, thank you. Please stand by for our next question. Our next question comes from the line of Kyle Smith with Stifel. The line is open.

Hey guys, this is Kyle Smith on for Tore Svanberg at Stifel. Congratulations on the strong quarter. I think it's pretty clear that the strong revenue beat and guide is stemming from tangible design wins and product momentum. That being said, could you provide more commentary on the process that management uses to check for any potential demand pull ins related to the tariff environment? Are you speaking directly with customers or distributors, monitoring yourself for any irregularities, or is it kind of a mix of multiple factors?

Speaker 2

Yeah, I think that's a very important topic internally because we are all going through this industry-wide inventory correction for the last three years, and every time we see some high growth of area, the first reaction is that's total customer. In the past few years, we build a relationship with all the customers and also our distributor to make sure that we review inventory every month, and then based on that, we try to decide whether we've seen any inventory build so far. I think throughout the process with this internal check, we haven't seen any inventory build that is beyond the normal practice.

Also, personally, every time I have a meeting with my peers in our customer base, one of the topics is always about supply chain and about the supply, and I got no feeling that anybody is telling us that they are building excessive inventory, worrying about geopolitical situation. With that, that's just from the feedback from customers, but more internally, we build some kind of a checkpoint to understand, look at the customers, the order patterns, and whether that's associated with any product ramping up. If there's any indication of extra inventory build internally, we have some read along. So far, based on all of this internal and external discussion, I think that we feel quite confident that we haven't seen any meaningful inventory build up in our customers.

Perfect, thank you. You mentioned a lot of really exciting design wins in the prepared remarks. I'm curious what the customer response has been to the Cooper development platform, particularly within these new and emerging markets. Are there any specific components of the platform showing outsized positive feedback?

I think first of all, the feedback from our Cooper development platform is very positive. Not only help our customer to move from one of the chip to another chip easily because Cooper platform cover all the chips that we develop, and so that for our customer it's really become powerful tool for them develop the product once and they can use the same product through many different chips on the Ambarella. That's one most important thing. With the investment now, we can easily enable our customer to play with our SDK and also play with all the neural network we put into our model garden and also enabling them to learn how to use our compiler to compile the neural network to our hardware. All of those features are all integrated into this Cooper platform.

I'm not saying that's perfect, but definitely with the benefit to customer, they all continue to give us great feedback about how we can continue improvement so that they can enjoy the platform more.

Perfect. If I could just sneak one more in, contemplating this really outsized revenue growth, do you continue to expect non-GAAP OpEx to grow at around 10% annually, or should we maybe bake in a little bit higher OpEx going forward?

Speaker 5

Yeah, thanks, Kyle, for the question. I think it's reasonable if you take this a little bit higher than 10% is probably reasonable. I think quarter over quarter. I think year to date we're at about 12% or year to date we're at about 12% growth. I think we'll probably stay in that range for the full year.

Perfect. Congratulations again, guys.

Speaker 2

Thank you.

Speaker 8

Please stand by for our next question. Our next question comes from the line of David O'Connor with BNP Paribas. Your line is open.

Speaker 2

Yeah.

Good afternoon, guys. Thanks for taking my question. Maybe for me, just going back on the automotive side of things again. ADAS, you know, through this year, the L2+ adoption rates, you know, have slowed, the software not ready, OEMs optimizing for price. You guys have talked about this through the year as we sit here in August. From your recent conversations with customers, can you talk about any changes there on how they're viewing that kind of adoption on their next model? Any sign that they may be pulling it in, or just any kind of changes that you're seeing there that would help frame the backdrop for potential traders.

I think the scenario described continues and we continue to see OEM coming up bidding on the, I would say, more low-end Level 2+ than, you know, higher end than that because people, like you said, OEM really focus on getting a proper cost than functional features. In fact, even in China recently we start seeing a similar trend because Chinese government definitely trying to make sure that autonomous driving becomes safe and the safety becomes the most important feature. I really think that the total trend of autonomous driving is focusing on safety and also low end of the function performance. For example, we announced a design win on 8-megapixel HADAS in China. That just gives you an indication that while we continue to bid on all kinds of different features, we see more opportunity on the low-end Level 2+ and also ADAS opportunities.

Speaker 1

Yeah, David, I mean we still see very significant lifetime revenue opportunities in the auto autonomy market for sure. There's this, you know, as Fermi mentioned earlier, there's a lower frequency of decisions. The market can be subject to delays like you referenced, and there's a longer time to revenue. What's been happening is all of these other Edge AI markets have more than caught up and, you know, are growing very rapidly for us now. We still have these products and are very much focused on landing these wins. It's just the frequency of them isn't as high.

That's very helpful, thanks. Thanks guys. Maybe one for John. Just on the incremental kind of growth year over year, with the new guide you're kind of up maybe $95 million, $100 million, somewhere like.

That for the year.

Speaker 2

Is there anywhere you can kind of...

Split that out in terms of units versus ASP? Our content, just kind of how you would break that down as kind of a percentage, is half of it unit growth, half ASP, any kind of steer that would help us there, size the kind of difference between those two drivers.

Thanks guys.

Speaker 5

Yeah, thanks David. I think you know what we've been seeing throughout this year as it's pulled together. You know, our estimate is that growth is roughly 50%/50% between ASP and unit growth.

Very helpful.

Speaker 2

Thanks so much, guys. Thank you.

Speaker 8

Please stand by for our next question. Our next question comes from the line of Gus Richard with Northland Capital Markets. Yolanda Golden.

Speaker 2

Yes, thanks for taking my questions and my congratulations for the strong results just in the IMT market. Could you give us a split between the security applications and the non security applications? Which of the non security applications are growing the most rapidly? In a non security application, I think that portable video definitely grow the fastest. In fact, Insta360 using CV5 to build their next generation sports camera as well as the panorama 360 degree camera and the ASP is high and the unit number continue to grow. That definitely is a faster growing market. I won't be surprised. We see a lot of growth in the future. See some growth on the drone side too because the ASP and yield number growth can be significant too.

Speaker 5

I guess.

Speaker 1

The auto business in Q2, I think John mentioned, grew in the mid single digits, and IoT grew in the mid teens. That would put auto in the low 20% range as a percent of revenue, and IoT, the balance.

Speaker 2

Got it. In terms of the IoT business, you know, you've got a.

Speaker 1

Wide diversity of applications, and I would.

Speaker 2

Imagine that your customers need, you know, support from field application engineers. I'm just wondering, you know, is that a limitation? You know, is that something that you need to bolster to help accelerate growth? You know, how are you thinking about customer support in that regard? Right. First of all, that unified hardware and software platform we just mentioned is really helpful because that means our field engineering can easily switch you from one customer to another customer. Although maybe a different application, different products, the fundamental hardware and software are almost the same. From that point of view, we definitely can leverage our field engineers in different application. You are right that when our revenue grow and when we looking at the different customer base, we continue to add to our field engineering, which is part of our growth plan that John highlighted just a few minutes ago.

Speaker 1

Got it.

Speaker 2

Thanks so much. Thank you.

Speaker 8

Please stand by for our next question. Our next question comes from the line of Martin Yang with Cowen. Your line is open.

Speaker 2

Hi, thank you for taking my question. On the strength you called out portable video products, can you tell us if the strength is driven by a single key customer? Or have you expanded your customer base with new design with new OEMs in the past quarter? In fact, we continue to have multiple customer base in this space. However, Insta360 definitely is the largest one that we mentioned because they switch from H22 based video process, the only solution last year, to this year, CV5 based solution. ASP growth definitely is one of the main reason we continue to see the growth from them. We continue to engage multiple portable video players throughout our careers.

Speaker 1

Hey Martin, I think you're familiar with the company, but we're selling into seven different portable video product lines there that would include, you know, action camera, sports panorama, but you know, also body worn, webcam, video conferencing, and now, you know, aerial drones. It's a lot of different product categories. It's not just a few.

Speaker 2

Right.

Got it.

Thank you. A follow up question on Insta360. In your guidance, do you assume business as usual with them without any potential impact from their ongoing lawsuit in the U.S.? First of all, we look at it and you know, it's not in our position to make a judgment on the outcome of the lawsuit and I will leave that to the two parties. Our assumption is based on the POs we receive from our customers and that's the only thing we're counting on. We forecast our business.

Speaker 1

Got it.

Speaker 2

Thank you.

For me, that's it.

Speaker 8

Thank you. As a reminder, ladies and gentlemen, to ask a question, please press star one one. Please stand by for our next question. Our next question comes from the line of Richard Shannon with Craig Hallum. Your line is open.

Speaker 2

Oh great.

Speaker 5

Thanks guys.

Speaker 2

Let me ask a question. The first one is on the broader Edge AI opportunity.

I talked about your first design win hoping to ship near the end of this fiscal year. Maybe you can describe what the pipeline looks like, maybe describe it, even quantify number of design opportunities and kind of any maybe new applications you're seeing here.

Speaker 5

Versus what you described in the past.

Speaker 2

Edge infrastructure.

Speaker 1

I think, Richard, was your question about just Edge IoT overall or just the infrastructure?

Speaker 2

I'm sorry, I misspoke. Edge infrastructure.

Sorry about that.

Right, exactly. First of all, you know that we've been working on the N1665H Gen AI SoC product for a while, talking to many customers, and this particular design win is our first design win that we can talk about. You can imagine that we are definitely engaging with multiple customers, new and old or existing customers with potential design wins. You should expect we continue to talk about our progress in this particular market. I think there are so many different types of potential appliances that people can build. In general, you can imagine that this kind of appliance is really trying to aggregate multiple H endpoints and apply the most advanced AI models on that to provide different services. That's just in general terms to describe the opportunity out there.

Definitely, this kind of appliance needs to run not traditional computer vision, but more importantly, all the large language models or vision language models are probably the focus area where our customers want.

Speaker 1

Yeah, Richard, we've talked about a SAM for this market of, you know, in this year, this fiscal 2026, of being around $125 million and in five years, you know, approaching $500 million, and, you know, we feel those figures are conservative. We're still learning about the market. Fermi said this is our first design win. You know, we're pretty excited about the level of interest from customers, both new customers and existing customers for Ambarella.

Speaker 2

The success of this market will continue to drive up our average selling price. Okay, great. Thanks for that, guys. Second question here is on the portable.

Video opportunity here, and following on the questions and responses from past couple of.

Questions here, to what degree are these?

Opportunities or applications more consumer oriented versus enterprise in nature?

Speaker 1

It depends on the market, but I say overall across all, you know, seven that I just described for like Insta360, more weighted to consumer, and they're still being sold into enterprise applications. For example, body worn cameras is a market that at least today is very heavy enterprise and public safety driven, and that's one of the categories. If you switch over to, you know, some of the other portable video markets, it might be more on the consumer side, and overall I'd say they are weighted more heavily to the consumer side, which is one of the factors that allows them to get to revenue faster.

Speaker 2

Okay, great.

Thank you, guys.

Thank you.

Speaker 8

Thank you, ladies and gentlemen. I am showing no further questions in the queue. I would now like to turn the call back over to Dr. Fermi Wang, CEO, for closing remarks and thank you.

Speaker 2

for joining us today. We are going to see you next time for sure.

Speaker 8

Thank you, ladies and gentlemen. That concludes today's conference call. Thank you for your participation. You may now disconnect.