Ambarella stock gains as Rosenblatt sees it as one of the best physical AI plays

Shares of Ambarella Inc. AMBA surged about 28% on Tuesday.

The rally came after Rosenblatt Securities identified the edge artificial intelligence chipmaker as one of its top technology stock picks for the second half of 2026, citing its strong positioning in the fast-growing physical AI market.

The brokerage included Ambarella among a select group of eight technology companies it believes offer attractive risk-reward profiles heading into the second half of the year.

Rosenblatt maintained a Buy rating on the stock and reiterated its $120 price target, implying approximately 79% upside from Monday's closing price.

The rally adds to an already strong run for the semiconductor company, whose shares have climbed 74% over the past three months.

Rosenblatt highlights physical AI opportunity

Rosenblatt's bullish outlook centers on Ambarella's exposure to what it describes as the rapidly expanding physical AI market, where artificial intelligence is deployed directly on devices rather than relying solely on cloud-based computing.

The brokerage expects AI adoption to continue expanding beyond data centers into real-world applications that require intelligent processing close to the source of data.

"We see AMBA as a Physical AI pure play," analyst Kevin Cassidy wrote in a report released Tuesday.

Cassidy said Ambarella's semiconductor products are well positioned to benefit from growing demand for edge AI computing across multiple industries.

Edge AI applications remain a key growth driver

Rosenblatt's investment thesis is based largely on increasing demand for AI vision processors capable of delivering high-performance computing with low power consumption directly at the edge.

"Applications such as surveillance, robotics, industrial automation, drones and autonomous systems require high-performance, low-power AI vision processors close to the sensor," Cassidy said, adding, "Ambarella's algorithm first AI [security operations center] architecture delivers."

The brokerage believes these markets position Ambarella to benefit as AI inference increasingly shifts from centralized cloud infrastructure to connected devices such as cameras, autonomous vehicles, robots and industrial equipment.

Recent business developments also support that outlook. Ambarella recently reported record fiscal 2026 revenue, with Edge AI products accounting for approximately 80% of its business.

The company also signed a long-term agreement with Hanwha Group covering security, robotics and industrial automation.

The agreement represents a potential revenue opportunity of up to $800 million over more than a decade, although that figure is not guaranteed.

Growth outlook balanced by execution risks

Despite the positive outlook, Ambarella continues to face execution challenges as it invests heavily to expand its Edge AI business.

The company's long-term growth thesis depends on its Edge AI system-on-chip platforms becoming a critical hardware layer as AI inference moves closer to cameras, vehicles and industrial devices.

Broader enterprise adoption and increased automotive deployments remain key catalysts for the business.

At the same time, higher research and development spending and rising operating costs could pressure financial performance if expected design wins and production volumes fail to materialize.

Ambarella also continues to face customer and geographic concentration risks, which could affect future growth.

According to long-term projections, Ambarella is expected to generate approximately $526.3 million in revenue and $74.3 million in earnings by 2028.

Achieving those figures would require annual revenue growth of about 14.8% and a significant improvement in profitability from its current earnings position.