Ambarella, the semiconductor company renowned for its high-definition video processing capabilities, recently conducted its Q1 2025 earnings call. While analysts were captivated by the company's first passenger vehicle contract for its CV3-AD AI domain controller and the anticipated 30% growth in AI inference revenue for fiscal 2025, a more subtle, potentially game-changing development went largely unnoticed. The hint? A seemingly unassuming acronym: VLM, which stands for "Vision Language Model."

Hidden within Ambarella CEO Fermi Wang's discussion of customer engagements is the revelation that the company successfully demonstrated cutting-edge generative AI technology, namely VLMs, operating on its N1 and CV72 SoCs. While the tech world is enthralled with ChatGPT and the capabilities of large language models (LLMs), VLMs, their visually-oriented counterparts, represent a nascent but potentially transformative force in AI.

VLMs, unlike LLMs that excel in text-based tasks, bridge the divide between language and vision. They empower AI systems to comprehend and interact with visual data in a way that was previously inconceivable. Imagine, for instance, searching through countless hours of security footage by simply typing, "Show me instances of a person carrying a red backpack." No need for intricate training or tedious manual review – just the power of natural language to extract insights from visual data.

"Ambarella's demonstration showcased this very capability. The company used VLMs to analyze video recordings, identifying objects described by basic text prompts and providing near-instantaneous results without any object-specific training. This is not merely an incremental advancement; it's a fundamental shift in how we approach and leverage visual data. And Ambarella, with its VLM-enabled N1 and CV72 SoCs, is strategically positioned to spearhead this revolution."

But the true brilliance of Ambarella's strategy lies in its target market: enterprise security cameras. This is a market ripe for disruption, weighed down by manual monitoring, restricted search functionalities, and the ever-increasing difficulty of managing massive volumes of video data. VLMs offer a compelling solution – efficient, adaptable, and cost-effective. And Ambarella, with its established customer base in this sector, is perfectly positioned to capitalize.

Projected Revenue Growth from VLMs in Security Camera Market

The following chart illustrates the potential revenue contribution of VLMs to Ambarella's top line, assuming a conservative 10% market penetration within two years.

This isn't mere speculation. Ambarella's CEO explicitly confirmed that their current enterprise and security camera clients have expressed "extreme interest" in this technology. He further revealed that several of these customers are on the verge of launching projects with Ambarella utilizing VLMs in the near future. This indicates a tangible revenue prospect, not just a far-fetched concept.

To grasp the potential magnitude, let's delve into some figures. Ambarella's security camera segment constitutes a substantial portion of its IoT revenue, which, in turn, comprised two-thirds of its total revenue in the previous year. Now, hypothesize that VLMs, upon successful commercialization, could capture a modest 10% of Ambarella's security camera market within the next two years. Taking into account the 30% AI inference growth projected for fiscal 2025 and the company's declared objective to "restore revenue growth and profitability," VLMs could inject tens of millions of dollars into Ambarella's revenue stream within a relatively short timeframe.

However, the ramifications extend far beyond near-term financial gains. Ambarella's successful implementation of VLMs on its existing SoCs underscores the company's technological proficiency and its capacity to swiftly acclimate to emerging AI patterns. This, combined with their proactive investment in 2-nanometer technology – a clear sign of their dedication to remaining at the forefront – paints a picture of a company poised for sustained growth in the burgeoning realm of edge AI.

Ambarella's latest earnings call may not have sparked immediate fanfare surrounding VLMs, but the discerning investor should take note. The concealed message within the transcript – the authentic customer enthusiasm, the impending project initiations, the alignment with their existing market – all suggest a potential generative AI surge that could propel Ambarella's stock to unprecedented heights.

"Fun Fact: Ambarella's technology powers GoPro cameras! The next time you enjoy a breathtaking action video, there's a good chance that Ambarella's chips are behind the scenes, making the experience possible!"