Ambarella (AMBA) shares gained nearly 20% on Tuesday following a report that the Santa Clara-headquartered chip designer is exploring a potential sale.
According to sources that spoke with Bloomberg, Ambarella is already working with bankers and has attracted buyout interest from private equity firms as well.
Taking over AMBA is an exciting proposition for semiconductor giants interested in strengthening their footprint in the automotive space, the report added.
Including yesterday’s rally, Ambarella stock is up more than 60% versus its year-to-date low set in April.
Ambarella’s exploration of a potential sale may prove to be a positive for its shareholders since buyouts are often agreed upon on at a significant premium.
Moreover, a meaningful surge in AMBA shares following the Bloomberg report already reflects market confidence in the company’s strategic value, especially in edge AI and automotive imaging.
So, a buyout agreement could unlock greater value for shareholders than Ambarella might achieve independently.
Therefore, even amidst its recent losses, the prospect of a competitive bidding process could inject momentum into Ambarella’s narrative and help its stock rally in the weeks and months ahead.
Investors could also take heart in the fact that Richard Shannon – a Craig-Hallum analyst – expects Ambarella stock to do well even without a potential sale.
Earlier this month, Shannon reiterated his “Buy” rating on AMBA shares that he believes could hit $95 over the next 12 months, indicating potential upside of another 60% from current levels.
In his research note, the analyst attributed his optimism on the semiconductor stock mostly to the company’s first-quarter results that handily topped Street estimates for both top and the bottom lines.
Despite year-to-date weakness in Ambarella shares, Wall Street at large remains reasonably bullish on the Nasdaq-listed firm.
Consensus rating on AMBA stock currently sits at “Moderate Buy” with the mean target of about $80 hinting at potential upside of well over 30% from here.
