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Why Ambarella Stock Fell Wednesday

Daniel Sparks, The Motley Fool

What happened

Shares of video solutions semiconductor company Ambarella (NASDAQ: AMBA) took a hit on Wednesday, declining as much as 13.8%. As of 11:34 a.m. EDT, the stock was down 12.9%.

The stock's decline follows a note from Morgan Stanley analyst Joseph Moore (via Bloomberg) saying Chinese video surveillance companies that are clients of Ambarella are at risk of being placed on a U.S. blacklist amid trade tensions between the two countries.

A chalkboard sketch of a chart showing a stock price falling.

Image source: Getty Images.

So what

Chinese video surveillance company Hangzhou Hikvision Digital Technology, which Moore estimates makes up between 16% and 19% of Ambarella's total revenue, is at risk of being blacklisted, the analyst argued. Another Ambarella customer at risk is Zhejiang Dahua Technology, the analyst said.

Ambarella's security camera revenue represented about 50% of total revenue in fiscal 2019, the company said in its fiscal fourth-quarter earnings call.

Now what

Investors should look for Ambarella management to address these concerns in the company's fiscal first-quarter earnings call on June 4. In addition, if Moore is right about this risk, it may be reflected in the company's revenue guidance provided in the upcoming quarterly update.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella. The Motley Fool has a disclosure policy.