Video chip juggernaut Ambarella (AMBA) closed above $100 for the first time last week, which is not bad for a stock that started the year at $50, and which I first recommended to New Tech Superstars members at $23 in May last year. On Thursday afternoon, I read the transcript of the company’s quarterly earnings call with analysts, and it was quite illuminating.
Not sure if you know this, but most earnings call transcripts are provided free at the website SeekingAlpha.com. It used to be very difficult and expensive to get these, and the fact that SA provides them free is a sensational public service. Read it yourself here.
My main takeaways from the comments by management and comments from analysts were the fact that high-definition video capture, transmission and sharing by both the public and commercial users are one of the few truly accelerating growth segments in the world.
The inexpensive “flying camera” segment, otherwise known as drones, is just getting started, as is the use of HD color cameras to monitor ordinary homes through the home security units of Comcast (CMCSA) and AT&T (T). Among the benefits of the new chips from Ambarella are the ability to scan through up to eight hours of video in a minute, and the ability to store and transmit all that data locally, and obtain it through ordinary handheld devices like smartphones and iPads.
This is really a big deal, somewhat akin to the start of the whole handheld communications growth segment itself, as it used to be very difficult and expensive to store, access and view high-quality video tape even for businesses.
The fact that this is being pushed down to the home user at very reasonable costs is a breakthrough and helps to justify rising expectations for small companies like Ambarella in this space that have patent protection.
If the company ever does a secondary as a way to raise more cash for an acquisition or marketing, the shares will probably pull back sharply and provide an entry point for newcomers.
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The main news story last week was the volatility in bonds, with U.S. and euro-zone debt reversing from earlier weakness to finish broadly stronger. Most attention was on moves in German debt, with 10-year yields touching 0.99%, the highest level since October 2014.
Apropos these developments, I ran across some fascinating research by Jason Goepfert of Sundial Capital. He observes that the iShares 20 Year Treasury Bond fund (TLT) has seen epic outflows of late.
The bottom chart above shows the fund flows for TLT over the past 100 days, and it has dropped to a new record low of -$1.3b billion. Other times that the flow exceeded -$1.2 billion over the past 100 days are circles on the top chart above. Each time it led to a long-term rally in the TLT as bonds rebounded.
Of course, Goepfert acknowledges, bonds have been in a multi-decade bull market, so bouts of extreme pessimism have been great buy points. And at some point that will stop and pessimism will lead to nothing but more losses. Yet at this point the outflow is about 33% of total assets, which is the equivalent of other extremes marked on the chart.
Goepfert goes on to say that other bond sentiment measures he tracks are neutral on the long-term U.S. bonds, rather than overly pessimistic, so he’s not turning positive on a medium- or long-term basis. But for a short-term trade, he argues that this bout of extreme pessimism is worth at least a rebound of decent sized proportions. That’s a valuable insight.
Best wishes,
Jon Markman
