Key Points
AI is hot, but the next wave will be even hotter: the mass market embedding of AI technology.
Computer vision is at the heart of industrializing AI; if computers can see it, they can do something about it.
These stocks are leaders in the computer vision industry and stand to gain from the mainstream use of AI technology.
5 stocks we like better than Ambarella
AI is hot; today’s craze is just the tip of the iceberg. While large language models, generative AI, and image-producing algorithms are neat, the next phase of AI will start generating cash flow for companies other than NVIDIA NASDAQ: NVDA and the data center group in which generative AI is grounded.
That phase is AI’s industrialization, which will be facilitated by the IoT, edge computing, and computer vision stocks like the ones listed here.
These are the leading players in computer vision. Computer vision is an industry that the mass-market embedding of AI technologies such as autonomous driving, smart warehouses, and consumer products will drive.
The question isn’t if these stocks have a catalyst; it’s when the market for computer vision chips will boom, and it should be soon. As it is, the industry is looking at a 20% CAGR over the next 5 to 10 years.
Ambarella is the Leader in Computer Vision
Ambarella NASDAQ: AMBA shifted focus to edge computing, the IoT, and the industrialization of computer vision a few years ago. That shift is paying off, evidenced by traction in the automobile and industrial arenas. Ambarella’s goal is to make cameras smarter; its processors and dedicated vision processing algorithms can extract data from high-resolution images that can be used to detect and classify objects.
Applications run from mass-market IoT applications through robotics, autonomous vehicles, and security. Features of Ambarella products include stereo vision and high-resolution imaging with low power and bandwidth consumption.
Price action in AMBA stock corrected over the past year along with the semiconductor industry inventory normalization. Normalization resulted in YOY revenue declines, but the company has outperformed, and growth should resume in the next fiscal year.
Analysts expect revenue to jump more than 25% and margins to widen significantly. Analysts rate the stock a Moderate Buy with a consensus target near $94. The consensus is down compared to last year but firmed since the last earnings report, implying about 35% upside.
CEVA, Inc. Licenses Technology to OEMs
CEVA, Inc. NASDAQ: CEVA is another computer vision and AI-focused company banking on embedding CV technology. The company develops and acquires CV and AI technology with the intent of licensing it to OEMs. The company’s products include processors and the software to operate them.
Cognex Corporation; Embed Computer Vision Technology Today
Cognex Corporation NASDAQ: CGNX manufactures a computer vision and sensing hardware line. The company’s focus is the industrial applications of CV and the IoT, including logistics, the automotive industry, and automation/robotics.
Recent results have been weak due to reduced spending by end-market users, but the long-term outlook is robust. Cognex is also a dividend-paying stock, with a yield near 0.6%. The yield isn’t large, but it is reliable and growing.
LightPath Makes Optical Components and Assemblies
When the OEMs ramp up demand for CV products, LightPath NASDAQ: LPTH will be ready to manufacture the components and assemblies. The company is a leader in optics and optical components, including CV and AI-powered technology. Its products are used in the healthcare profession, defense applications, industrial tools, and automotive.
The caveat is that this is a penny stock with less than $100 million of annual revenue. That risk aside, the company is expected to grow revenue by 17% next year, aided by expansion. The company is in the process of building another facility to help it deliver on the growing backlog.
Himax Technologies, Inc.- High-Yield Opportunity
Himax Technologies NASDAQ: HIMX provides a wide range of products and services related to computer vision and display. The company’s AI-powered computer vision applications include the WE1-Plus Ultra-low power microprocessor. This SoC includes interfaces for Himax’s AO sensing (always-on) devices for quick power-up and image capturing.
Himax pays a dividend with a high yield, but the payout is erratic in size due to the distribution plan. The analysts rate Himax a Buy and see it moving 20% to 30% higher.
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