The Best Semiconductor Stock to Buy Beat the S&P 500 by 89%

We were sound asleep when the dog began barking at the top of her lungs. It was 1:37 a.m.

Someone was knocking at the front door…

To make sure the knock wasn’t some pretext for a home invasion, I went right straight to my security camera.

Thankfully, I saw two police officers standing there. In that one instant, my security monitor paid for itself. This makes it easy to see why the global video surveillance market is expected to triple between now and 2027.

That points to extreme upside for the leading supplier of semiconductors – chips – to this one sector. Indeed, this is a firm that’s been expanding its markets, to the point where recent quarterly earnings grew 483%.

I’m going to name the company in a moment – and tell you why I think it’s one of the best chip stocks you can buy right now…

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A Good Camera Is a Good Idea

When the police showed up that night, it was because of a (false) report of a domestic disturbance up the street, and they wanted to know if we had heard anything.

I’m glad I checked the monitor first because I then had the confidence to go and talk with the officers at the door.

Our late-night knock turned out to be benign, but I take home security very seriously; I’m very concerned with avoiding even the possibility of violent crime.

Last summer, a local family in my neighborhood was robbed at gunpoint in their home.

And so every night before going to bed, I check every lock in the house and make sure the alarm is set and that my cameras are working properly. Whenever the dog barks, I scan my security feed before going out to see what’s up.

I believe every homeowner in America should have security surveillance.

Millions must agree. After all, Allied Market Research says that by 2027, the global market for video surveillance will more than triple to a value of $144.8 billion.

The global leader in chips for this market, Ambarella Inc. (NASDAQ: AMBA), will see bottom and top lines soar on this growth.

This company is a semiconductor design firm that focuses on chips for low-power, high-quality video, computer vision, and image processing.

Cashing In on Chips

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Ambarella started off making video chips for the “action cameras” like the GoPros, daredevils, and extreme sports athletes use worldwide.

But it has since diversified its way out of that one niche.

Today, about 60% of Ambarella’s revenue comes from smart security makers. Companies that use Ambarella’s chips in their cameras include Alphabet Inc.‘s (NASDAQ: GOOGL) Google Nest line as well as Amazon.com Inc.‘s (NASDAQ: AMZN) Ring line.

In 2015, Ambarella acquired VisLab, which allowed it to get into the artificial intelligence (AI) vision business. That technology is what allows the chips in security cameras, self-driving cars, and more to recognize people and animals, say, or distinguish a dangerous break-in from a routine package delivery.

Having the AI recognition on the chip itself is faster, more reliable, and saves on bandwidth, compared to having to send the raw footage to a server somewhere else in the system or even over the Internet.

The market opportunity here is huge, as, currently, most of the over 900 million security cameras currently installed are aimed only at showing an image for a human to review and act on.

Each camera is replaced about every four to six years, according to Ambarella, and more and more businesses and people are switching to smart cameras that can tell what they’re looking for and give the user better, more accurate alerts.

Cameras with built-in AI also allow for some clever automation. For example, smart security cameras with Ambarella’s chips can use face ID to unlock doors or sound the alarm when they spot authorized or unauthorized people.

Or they can be used for payment processing, perhaps charging a given individual based on the products they see the person having taken off the shelf in a store.

Smart cameras can even measure foot traffic, monitor the elderly for falls, send out alerts for overcrowding, and much more.

And they preserve privacy to a large degree because they don’t record the footage.

The company rightly sees smart cameras as currently the biggest segment of the growing “Internet of Things” (IoT).

It’s not surprising, then, to see that it’s such a good investment since groundbreaking and unstoppable trends like this are some of the best places to look for outstanding tech profits.

I’m Seeing (a) Double

Ambarella is targeting both the consumer and the corporate sector here. One-quarter of the firm’s camera chip sales come from consumer cameras and the rest from corporations and governments, both of which are massively expanding their smart camera spending.

And that’s not all. With more and more cars adopting driver-aid technology, not to mention full-on self-driving tech, Ambarella’s AI vision chips are in growing demand.

The firm moved into the auto market back in 2015 and three years later began unveiling prototypes. It was a savvy move. Chips for cars now account for 25% of Ambarella’s sales.

This also includes aftermarket car additions such as dashcams and passenger-monitoring cameras. Truck operators and ride-hailing drivers often use one or both to help with safety and insurance issues.

Over the past five years, the stock’s 208% return is 89% better than the benchmark S&P 500.

In the most recent quarter, the firm grew per-share profits by 483%. If they average just 5% of that amount, we’d see them double in three years, so, realistically, given market conditions, I think we can expect a double long before then.

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