“Smart Camera” Chips Are Helping This Stock Multiply

0 | By Michael A. Robinson

A recent incident at home in the dead of night demonstrates perfectly why I put so much faith in my security cameras.

We were sound asleep when our dog began barking at the top of her lungs. It was 1:37 AM and someone was at the front door.

To make sure it was not a pretense for a home invasion, I went right to my security monitor. Thankfully, I saw it was two police officers.

This anecdote illustrates exactly why the $49 billion video surveillance market is growing so quickly.

And I see lots of upside for the leading supplier of chips for this sector.

See, it’s been expanding its markets and recently grew quarterly earnings by an astounding 483%…

Cashing In Chips

I take home security very seriously and am very concerned with avoiding possible violent crime.

Last summer, a local family in my neighborhood was robbed at gunpoint in their home.

Every night before going to bed, I check every lock in the house and make sure the alarm is set and that my cameras are working properly. Whenever the dog barks, I scan my security feed before going out to see what’s up.

When the police showed up that night, it was because of a (false) report of a domestic disturbance up the street, and they wanted to know if we had heard anything.

I’m glad I checked the monitor first because I then had the confidence to go and talk with the officers at the door.

This example perfectly illustrates why I believe every homeowner in America should have security surveillance.

Millions must agree. After all, Allied Market Research says that by 2027, the global market for video surveillance will more than triple to a value of $144.8 billion.

That’s why I’m glad to tell you about the global leader in chips for this market, Ambarella Inc. (AMBA).

This company is a semiconductor design firm that focuses on chips for low-power, high-quality video, computer vision, and image processing.

Competitive Connections

The company started off making video chips for the “action cameras” like GoPros that daredevils and extreme sports athletes use.

But it has since diversified out of only that niche.

Today, about 60% of Ambarella’s revenue comes from smart security makers. Companies that use Ambarella’s chips in their cameras include Alphabet Inc.’s (GOOGL) Google Nest line as well as Inc.’s (AMZN) Ring line.

In 2015, Ambarella acquired VisLab, which allowed it to get into the AI vision business. That technology is what allows the chips in security cameras, self-driving cars, and more to recognize people and animals or distinguish a break-in from package delivery.

Having the AI recognition on the chip itself is faster, more reliable, and saves on bandwidth, compared to having to send the raw footage to a server somewhere else in the system or even over the Internet.

The market opportunity here is huge, as most of the over 900 million security cameras currently installed are aimed only at showing an image for a human to review and act on.

Each camera is replaced about every 4 to 6 years, according to Ambarella, and more and more businesses and people are switching to smart cameras that can tell what they’re looking for and give the user better, more accurate alerts.

Cameras with built-in AI also allow for some clever automation. For example, smart security cameras with Ambarella’s chips can use face ID to unlock doors or sound the alarm when they spot authorized or unauthorized people.

Or they can be used for payment processing, perhaps charging a given individual based on the products they see the person having taken off the shelf in a store.

Smart cameras can even measure foot traffic, monitor the elderly for falls, send out alerts for overcrowding, and much more – all while preserving privacy by not recording footage.

The company rightly sees smart cameras as currently the biggest segment of the growing Internet of Things.

It’s not surprising then to see that it’s such a good investment since groundbreaking and unstoppable trends like this are some of the best places to look for outstanding tech profits.

Double Vision

And Ambarella is targeting both the consumer and the corporate sector here. One-quarter of the firm’s camera chip sales coming from consumer cameras and the rest from corporations and governments, both of which are massively expanding their smart camera spending.

And that’s not all. With more and more cars adopting driver aid technology, not to mention full-on self-driving tech, Ambarella’s AI vision chips are in growing demand.

The firm moved into the auto market back in 2015 and three years later began unveiling prototypes. It was a savvy move. Chips for cars now account for 25% of Ambarella’s sales.

This also includes aftermarket car additions such as dashcams and passenger-monitoring cameras. Truck operators and ride-hailing drivers often use one or both to help with safety and insurance issues.

Over the past five years, the stock’s 208% return is 89% better than the benchmark S&P 500.

In the most recent quarter, the firm grew per-share profits by 483%. If they average just 5% of that amount, we’d see them double in three years.

In other words, Ambarella is a great example of why I keep saying the road to wealth (and home security) is paved with tech.

Cheers and good investing,

Michael A. Robinson

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