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With the inventory correction now in the rearview mirror and with demand for its AI inference and edge products picking up steam, Ambarella (AMBA) delivered an impressive beat-and-raise 2Q25 earnings report and returned to positive yr/yr revenue growth of +2.6%. Over the past several quarters, AMBA's automotive and IoT customers engaged in destocking as they rebalanced their inventory, resulting in seven consecutive quarters of yr/yr revenue declines. However, during the earnings call, the company stated that it expects revenue in 2H25 to reflect actual end market demand since most of its customers have completed their rebalancing efforts.

• AMBA also commented that while the macroeconomic environment and slowing EV market are headwinds for its business, company-specific catalysts are overcoming those pressures. This is illustrated by the company's Q3 revenue guidance of $77.0-$81.0 mln, which easily exceeded expectations and represents strong sequential growth of 24% at the midpoint.
• One of those key catalysts is the emergence of AMBA's new AI inference and edge products -- notably including its CV5 chips -- and the higher average ASPs that those products carry. Currently, the CV5 family is the only new product on the market, being sold into the automotive and IoT end markets. Demand is quite healthy as AMBA expects to exceed 1.0 mln units shipped this year across more than 1,000 design wins.
• Looking ahead to late FY25, the CV7 family is slated to enter production, with the initial applications also centering on computer vision for the auto and IoT markets. However, CV7 is ultimately expected to power vision-language models in data center settings, representing the next stage of this growth cycle. In simple terms, vision-language models are defined as models that can learn from both text and images.
• The ramp up of AMBA's new products should also eventually provide a boost to AMBA's gross margin, thanks to their higher ASPs. In Q2, non-GAAP gross margin slipped by 130 bps yr/yr to 63.3%, and for Q3, the company is forecasting gross margin of 62.5%-64.0%.

The main takeaway is that AMBA has finally turned a corner in terms of the inventory-related headwinds that have plagued its business, setting the stage for much stronger growth in the coming quarters as its launches and ramps new AI inference products.