Artificial intelligence (AI) is rapidly transforming numerous industries, and a significant shift is underway from centralized cloud-based processing to decentralized edge computing. Edge computing processes data closer to the source, offering compelling advantages for AI applications. This developing field presents a significant opportunity for investors, particularly in companies developing specialized chips designed for edge devices.
The Shift to the Edge: Why It's Happening
Cloud computing, despite its many advantages, can encounter obstacles when used for certain AI applications. Latency, or the time it takes to send data to the cloud for processing and then receive a response, can be a significant hurdle for real-time applications. For instance, an autonomous vehicle relying on data processed in a remote data center for split-second decision-making could experience delays with potentially dire consequences. Additionally, the vast amount of data produced by the growing number of Internet of Things (IoT) devices can overload network bandwidth, causing slowdowns and higher costs.
Edge computing solves the latency problem by bringing computation and data storage closer to the source of data generation. This decentralized approach offers key benefits, including reduced latency, bandwidth consumption, and network congestion, which are crucial for applications requiring real-time responses. Additionally, processing sensitive data at the edge enhances privacy and security by reducing the risk of data breaches. Edge computing also improves reliability, as devices can function even with intermittent or no internet connectivity. Finally, its distributed nature promotes scalability, making it easier and more cost-effective to deploy AI applications across numerous devices.
Specialized Chips: The Key to Edge AI
Edge AI hardware must operate under the constraints of edge devices. This specialized hardware must be energy-efficient and compact to work in edge environments that have limitations on power, size, and connectivity. It must also deliver high performance without generating too much heat or using too much power. Additionally, robust hardware security features are essential to prevent unauthorized access and tampering with sensitive data.
Ambarella: Visionary in Edge AI
Ambarella Inc. (NASDAQ: AMBA) has established itself as a leader in AI vision processing. The company designs and develops low-power, high-performance system-on-a-chip (SoC) solutions that enable intelligent devices to see and understand their surroundings. Ambarella's CVflow® AI vision processors are specifically designed to handle complex computer vision tasks at the edge.
Ambarella primarily targets the automotive, security camera, and robotics markets. In the automotive sector, Ambarella's SoCs power advanced driver-assistance systems (ADAS), autonomous driving functions, in-cabin monitoring systems, and electronic mirrors. For example, Ambarella's Oculii™ AI 4D imaging radar technology is deployed worldwide in the 2023 and 2024 Lotus Eletre electric hyper-SUV as well as the 2024 Lotus Emeya fully electric hyper-GT.
Ambarella has also announced strategic partnerships with companies such as Plus, a provider of autonomous driving solutions for trucks; LG Electronics, a leader in consumer electronics and appliance technologies; and Leapmotor, a Chinese electric vehicle manufacturer. These partnerships are a testament to the growing demand for Ambarella's edge AI solutions in the automotive industry.
Ambarella’s earnings report for the third quarter of fiscal year 2025 (Q3 FY2025) showed revenue of $82.7 million, a 63% increase from the same period in the previous fiscal year. While the company reported a GAAP net loss of $24.1 million, its non-GAAP net income was $4.5 million, compared to a loss of $11.2 million in the third quarter of fiscal 2024. Edge AI revenue represented approximately 70% of total revenue for the quarter. The average analyst price target is $84.17, with a high of $100.00 and a low of $55.00. This suggests a slight potential upside, especially considering that the company is starting to be re-rated around $100.00. This indicates the potential for even brighter days ahead. The consensus rating among analysts is "Moderate Buy."
Lattice Semiconductor: The Low-Power Programmable Play
Lattice Semiconductor Corporation (NASDAQ: LSCC) specializes in low-power, programmable FPGAs (Field Programmable Gate Arrays) that are particularly well-suited for edge AI applications. Unlike ASICs (Application Specific Integrated Circuits), which are designed for a specific function, FPGAs can be reprogrammed after manufacturing, offering greater flexibility and customization. This flexibility is valuable in the rapidly evolving field of edge AI, where algorithms and applications are constantly changing.
Lattice focuses on delivering small form factor, energy-efficient FPGAs that cater to a wide range of markets, including communications, computing, industrial, automotive, and consumer electronics. Recently, the company launched its Lattice Nexus™ 2 platform and Lattice Certus™-N2 general-purpose FPGAs, demonstrating its commitment to innovation in the small FPGA space. For the mid-range market, Lattice introduced the Avant™ 30 and Avant™ 50 devices.
The company also offers a suite of software design tools, including Lattice Radiant™ and Lattice Propel™, to streamline the development process for its customers. Further demonstrating its commitment to providing comprehensive solutions, Lattice offers application-specific solution stacks like Lattice sensAI™ for AI processing, Lattice mVision™ for embedded vision, Lattice Automate™ for factory automation, and Lattice Drive™ for automotive applications.
Lattice Semiconductor's earnings report for Q3 FY2024 revealed revenue of $127.1 million. While this represented a 33.9% decrease from the same quarter in the previous year, it marked a 2.4% increase from the previous quarter. The company's GAAP net income for the quarter was $7.2 million. Lattice recently appointed Ford Tamer as CEO, bringing extensive experience in the semiconductor industry. The company also announced a $100 million stock repurchase program, signaling confidence in its prospects. As of January 22, 2025, Lattice's stock was trading at $61.04, with a market capitalization of $8.42 billion. The average analyst price target is $64.58, with a high of $88.00 and a low of $47.00, also indicating potential upside.
A Promising Future
The edge AI market is poised for substantial growth in the coming years, driven by the increasing need for real-time processing, reduced latency, and enhanced data security. As AI applications continue to proliferate across various industries, the demand for specialized chips optimized for edge devices will only intensify. Ambarella and Lattice Semiconductor, with their respective strengths in AI vision processing and low-power programmable logic, are well-positioned to benefit from this trend. While investors should carefully weigh the risks and conduct thorough due diligence, the long-term outlook for these edge AI chipmakers appears promising.
