Earnings Call Transcript - AMBA Q2 2026

Operator, Operator

Hello, and welcome to Ambarella's Second Quarter Fiscal Year 2026 Earnings Call. I will now hand over the conference to Louis Gerhardy, Vice President of Corporate Development. You may begin.

Louis P. Gerhardy, Vice President of Corporate Development

Thank you, Towanda, and good afternoon. Thank you for joining our Second Quarter Fiscal Year 2026 Financial Results Conference Call. On the call with me today is Dr. Fermi Wang, President and CEO; and John Young, CFO. The primary purpose of today's call is to provide you with information regarding the results for our second quarter fiscal year 2026. The discussion today and the responses to your questions will contain forward-looking statements regarding our projected financial results, financial prospects, market growth and demand for our solutions, among other things. These statements are based on currently available information and are subject to risks, uncertainties and assumptions. Should any of these risks or uncertainties materialize, or should our assumptions prove to be incorrect, our actual results could differ materially from these forward-looking statements, and we're under no obligation to update these statements. These risks, uncertainties and assumptions, as well as other information on potential risk factors that could affect our financial results, are more fully described in the documents we file with the SEC. Before starting the call, I'd like to summarize our planned investor events for our third fiscal quarter. On September 3, we'll participate in Citi's Global TMT Conference in New York City. On September 4, we'll host KGI Securities Bus Tour in Santa Clara. On September 16, we'll host Bernstein's Seventh Annual West Coast Semiconductor Bus Tour at our office in Santa Clara. And on September 18 and 19, Craig-Hallum will host us on the Midwestern NDR. Access to our second quarter fiscal year 2026 results press release, transcripts, historical results, SEC filings, and a replay of today's call can be found on the Investor Relations page of our website. The content of today's call, as well as the materials posted on our website, are Ambarella's property and cannot be reproduced or transcribed without our prior written consent. Fermi will now provide a business update for the quarter. John will review the financial results and outlook, and we'll be available for your questions after that. Fermi?

Feng-Ming Wang, President and CEO

Thank you, Louis, and good afternoon. Thank you for joining our call today. Our strong momentum continued in our second quarter with revenue of $95.5 million, increasing 11% sequentially above the high end of our prior guidance range of $86 million to $94 million. The second quarter results represent the fifth consecutive quarter of record edge AI revenue. Furthermore, I am proud to say the midpoint of our new third quarter and the full fiscal year 2026 revenue guidance range represents all-time record quarterly and fiscal year total revenue for Ambarella. In our May 29 earnings call, we increased our fiscal 2026 revenue growth estimate to a range of 19% to 25% or approximately $348 million at the midpoint. With a strong order book as well as our expectation for both our total units shipped and our average selling price to increase in fiscal 2026, we are increasing our fiscal 2026 revenue growth estimate to a range of 31% to 35% or approximately $379 million at the midpoint. Needless to say, it is a very exciting time for Ambarella. Fundamentally, after a multiyear period of significant edge AI R&D investment, our broad product portfolio enables us to address a rising breadth of edge AI applications. This increased breadth not only drives our overall unit demand, but we continue to see very strong demand for our new 5-nanometer AI SoCs in both our existing and emerging edge AI markets, which is driving our firm-wide average ASP price higher. I would like to double-click on the rising breadth of edge AI applications I mentioned and focus on three applications we see as rapidly emerging for us: portable video, robotic aerial drones, and edge infrastructure. Our edge AI revenue began in the enterprise security market more than five years ago and was followed by incremental edge AI applications in the smart home, automotive safety, and telematics markets, all of which are continuing their unique growth trajectories. Now this year, layer on top is the rising demand for our edge AI SoCs from the portable video market, including action cameras, panorama cameras, and body-worn cameras. In addition to the portable video market, we expect to commence high-volume shipments into the robotics market by the end of this fiscal year. The unit volume in the robotic market is highly fragmented by application, form factors, and customers, but our technology, products, and roadmap have enabled us to win one of the early high-volume robotic applications, partially autonomous aerial drones. Portable video and robotics both represent new emerging edge AI applications in Ambarella's traditional market for IoT endpoints. Today, we are also announcing our first win in the edge AI infrastructure with our N1-655 SoC. This win is yet another example of the expanding breadth of our edge AI business and I'm encouraged by the interest in our N1 edge AI infrastructure roadmap from both new and existing customers. In the automotive autonomy market, the largest subset of the robotic market, we are actively bidding on OEM projects with our CV3-AD family of advanced 5-nanometer central domain controllers for L2+ to L4 applications. While offering significant lifetime revenue opportunities, the lower frequency of award decisions, OEM program delays, and a longer time to revenue are causing our other edge AI applications to emerge more rapidly. Nevertheless, we remain highly focused on developing this business, and we will provide updates on our progress as wins occur. I will now describe some representative customer engagement during the quarter, beginning with the two key customer design wins that validate our future vision and strategy. In a rapidly growing robotic drone market, Arashi Vision, also known as Insta360, launched the world's first 8K 360-degree drone under its new Antigravity brand. Powered by our CV5 AI SoC, this drone features dual lenses on both the top and the bottom, enabling 8K 360-degree video recording. The AI capacity in CV5 is fully utilized in this partially autonomous drone, and our product portfolio will enable the drone market to evolve rapidly to higher levels of autonomy. The Antigravity A1 is set to launch globally in January 2026. We are proud to see Arashi very successfully differentiate their diverse portable video and now robotic aerial drone portfolio with AI features such as new neural net image signal processing, AI editing, and gesture control, leveraging our AI SoCs. A majority of Arashi's products are based on Ambarella SoCs and approximately 70% of Arashi's shipments are exported. In the emerging edge AI infrastructure market, a global networking customer is rolling out compact on-premises network AI clients with multimodal intelligence at the event level built on our N1-655 AI SoC. This appliance will add large language model-powered natural language search, and we were selected because of power efficiency, network bandwidth saving, and low bill of material cost. This is a great example of one of the green shoots I mentioned earlier. There are several other use cases being evaluated on our N1-655 SoC. In our automotive safety, ADAS, and telematics business, I would like to share some key customer wins during the quarter. Samsara, a leading provider of commercial fleet telematics solutions, has introduced its AI Multicam platform based on Ambarella's CV72 AI SoC. Samsara's AI Multicam delivers live 360-degree visibility and real-time risk detection alerts on an in-cab monitor with up to four auxiliary HD camera feeds. It is a great design win for CV72 that demonstrates more camera inputs and advanced AI features on a single SoC. Audi is utilizing CV22FS for their left and right e-mirror functions in the E5 model, initially in the China market. It enables them to provide intelligent context-adaptive viewing modes on highways, parking, turning, and lane changes with dynamic image processing and display enhancement functions. Also in the mirror market, our BAIC Stelato S9 is utilizing CV22FS for their rearview electronic mirror. They note that AI-aided detection via camera input helped them cut down blind spots by up to 60%. A leading Chinese OEM will utilize our CV22 SoC for their 8-megapixel sensor designed specifically for the Level 2 front ADAS functionality. A key capability they are enabling is small target detection and long range. In the enterprise security segment, Honeywell in India has launched their 50 Series enterprise security cameras in 3-megapixel and 5-megapixel resolutions based on our CV25 SoCs. India is a fast-growing market with a drive for made-in-India products, creating new customer opportunities for us. In the smart home market, one of our long-term customers in the U.S. has leveraged our H32 SoCs to build multisensory multimodal AI products available in the retail outlets today. They have built a nursery device, integrating video monitoring, two-way intercom, high noise generator, and air quality sensor. They have also built a garage device that features carbon monoxide and heat detection, security camera, and intercom functionality. Also in the smart home market, Netatmo launched their Indoor Camera Advance products that are built on S6L SoC in the European market. As you can see from this representative customer engagements, we continue to build design win momentum in our existing edge AI endpoint application, and we continue to successfully address incremental edge AI applications such as robotic aerial drones and edge infrastructure as the edge AI market breadth expands. Having shipped more than 36 million edge AI processors to hundreds of customers who have successfully ported hundreds of advanced customer AI models to our SoCs, there should be no doubt that Ambarella is a leader in edge AI. Edge AI is expected to represent about 80% of our total revenue this year. We are focused exclusively on the unique needs of the edge AI market, and we continue at a rapid pace of innovation. In conclusion, I would like to summarize the key points covered today. First, we delivered Q2 results above the high end of our prior guidance, and we increased the midpoint of our full year fiscal 2026 revenue guidance by 9%. Second, the breadth of our edge AI applications we are successfully addressing is expanding as seen with our ongoing ramp in a variety of portable video applications and the anticipated production ramp for robotic aerial drones and edge infrastructure. Third, the growth of our edge AI business is also occurring with our higher-priced edge AI SoCs, supporting the anticipated growth in our ASP. Last, we are exclusively focused on the unique requirements of the edge AI market, and we remain an established edge AI market leader who continues to innovate at a rapid pace. Now John will discuss the Q2 results and the Q3 outlook in more detail.

John A. Young, CFO

Thank you, Fermi. I'll now review the financial highlights for the second quarter fiscal year 2026, ending July 31, 2025. I will also provide a financial outlook for our third quarter of fiscal year 2026 ending October 31, 2025. I'll be discussing non-GAAP results and ask that you refer to today's press release for a detailed reconciliation of GAAP to non-GAAP results. For non-GAAP reporting, we have eliminated stock-based compensation and acquisition-related expenses adjusted for the impact of taxes. For fiscal Q2, revenue was $95.5 million, above the high end of our prior guidance range of $86 million to $94 million, up 11.2% from the prior quarter and up 49.9% year-over-year. Sequentially, automotive revenue increased in the mid-single digits and IoT increased in the low teens, with IoT growth led by the adoption of edge AI in portable video applications. IoT in fiscal Q2 represented slightly more than 75% of our revenue and is spread across an increasing number of edge AI applications. Non-GAAP gross margin for fiscal Q2 was 60.5%, at the low end of our prior guidance range of 60.5% to 62% due to product mix. Non-GAAP operating expense in Q2 was $53.4 million, below the midpoint of our prior guidance range of $52.5 million to $55.5 million, primarily due to lower engineering-related costs associated with the timing of product development. Q2 net interest and other income was $2.2 million. Comparing to our prior guidance of $1.8 million, the increase was primarily from higher interest income. Q2 non-GAAP tax provision was approximately $200,000. We reported a non-GAAP net profit of $6.4 million or $0.15 per diluted share in Q2. Now I'll turn to our balance sheet and cash flow. Fiscal Q2 cash and marketable securities reached $261.2 million, increasing $1.8 million from the prior quarter and $41.4 million from the same quarter a year ago. Increased cash and marketable securities benefited primarily from operating cash flow associated with increased revenue, partially offset by increased expenditure on capital investments during the quarter. Receivables days sales outstanding increased from 31 days in the prior quarter to 40 days, while days of inventory decreased from 98 days to 85 days. Operating cash inflow was $5.5 million for the quarter. Capital expenditures for tangible and intangible assets were $4.1 million for the quarter. Free cash flow was $1.4 million. We had one logistics company representing 10% or more of our revenue, WT Microelectronics, a fulfillment partner in Taiwan, that ships to multiple customers in Asia, came in at 71% of revenue for the second quarter. I'll now discuss the outlook for the third quarter of fiscal year 2026. The breadth of our edge AI business is expanding with a strong unit and average selling price outlook. As a result, in Q3, we forecast revenue in the range of $100 million to $108 million or $104 million at the midpoint. Sequentially, we expect mid- to high single-digit percent growth in our automotive business with our IoT business up in the mid-teens. For fiscal 2026, we anticipate a revenue growth range of 31% to 35%. We expect fiscal Q3 non-GAAP gross margin to be in the range of 60% to 61.5%. We expect non-GAAP OpEx in the third quarter to be in the range of $54 million to $57 million, with the increase compared to Q2 driven by new product development costs. We estimate net interest and other income to be approximately $2 million. Our non-GAAP tax expense to be approximately $800,000, and our diluted share count to be approximately 43.7 million shares. Thank you for joining our call today. And with that, I will turn the call over to the operator for questions.

Operator, Operator

Our first question comes from the line of Christopher Rolland with Susquehanna.

Christopher Adam Jackson Rolland, Analyst

Congrats on a great quarter. So for my first question, I think for years, you guys pitched yourself kind of as the future of the company being automotive first, but IoT at this point has just been an incredible outperformer. I think it outperformed auto by 4x this year. So I guess my question is, are you thinking about IoT differently now? Could there be a pivot in your business where you just double down spending around IoT versus auto, lean into the development of IoT versus auto? And when might we get to a point where auto outperforms IoT? Or is this not the case just given the great interest in IoT?

Feng-Ming Wang, President and CEO

Thank you for the question. To start, as I mentioned, we are focusing on our Level 2+ and Level 4 autonomous driving and are working hard to achieve design wins in that area. However, our edge AI business has shown significant progress due to shorter design cycles and more opportunities. We plan to continue our focus on the edge AI market, which encompasses both autonomous driving and IoT. It's important to note that the fundamental hardware architecture for edge AI in IoT and autonomous driving is the same. Our CV4 architecture, image processing pipeline, CPU investment, and operating system have strong synergies between the two. This provides a solid leverage on the operating expenses side. While our marketing and sales strategies differ between the two, we will maintain our focus on both segments because I believe autonomous driving will drive our long-term strength. Additionally, we've made notable strides in edge AI within the IoT sector, and we intend to allocate more resources there to continue gaining market share in that space.

Christopher Adam Jackson Rolland, Analyst

And yes, regarding the growth rates, I have a couple of questions. First, do you expect the automotive sector to outpace IoT next year? You've mentioned automotive and your CV3 wins, which are projected to ramp up in 2027. Will we need to wait until then for automotive to show better performance?

Feng-Ming Wang, President and CEO

Right. So I think the auto will outperform IoT where we have major design wins with OEMs like the one that we talked about VWK 2.0. Have we won the design? Yes, I think in the 2027-2028 time frame, we can see that automotive growth will outperform IoT. Right now, I think in the foreseeable future, before we get any major design wins from the automotive side, IoT will continue to have a very strong contribution to our income. In fact, the current growth, you can see that the growth rate that we got from just the IoT side significantly improved over the last few years.

Operator, Operator

Our next question comes from the line of Kevin Cassidy with Rosenblatt Securities.

Kevin Edward Cassidy, Analyst

Congratulations on the great results and outlook. You piqued my interest with the robotic aerial drones. You mentioned Insta360. Is this another trend of will there be multiple companies coming out with these solutions? And are there commercial applications like for deliveries?

Feng-Ming Wang, President and CEO

Yes. Firstly, Insta360 targets both the commercial and consumer markets, and their volume is significant compared to what we have seen outside of DJI. We are also observing a market trend, with various companies in different countries focusing on specific drone applications. With the rise of autonomous driving in the automotive sector, technology has become increasingly available, suggesting that autonomous drones will gain popularity. This development will enable a variety of new applications in the near future. I believe this trend aligns with the advancements in robotics we are noticing across other fields; as autonomy becomes more feasible, the range of possible applications for robots and drones expands beyond what was previously considered possible. We are actively participating in multiple drone design initiatives, and we expect to continue reporting successes in this market.

Louis P. Gerhardy, Vice President of Corporate Development

Kevin, it's Louis. I want to build on that and connect it to Chris' question. This is a prime example of having multiple high-bandwidth sensors in a real-time application that collect data and enable increased levels of autonomy, similar to how vehicles progress from Level 1 to Level 4. We're observing the same trend emerging in the aerial drone market and other robotic fields. This advancement is powered by a common AI inference accelerator across various markets, whether in automotive autonomy, safety, telematics, or different IoT applications. We are utilizing this technology in a wide range of applications.

Kevin Edward Cassidy, Analyst

Your energy efficiency is very important when flying something that requires a battery. You have many exciting developments with your new designs, but we didn't hear much about your process technology or progress towards the next generation. Is everything still on track for moving to 2 nanometers?

Feng-Ming Wang, President and CEO

Absolutely. In fact, our foundry partners continue to announce design wins that not only give us a lot more confidence but also our potential customers. I think that we will continue to work on the 2-nanometer project and still remain targeted to take our customers to production in early 2027.

Operator, Operator

Our next question comes from the line of Quinn Bolton with Needham & Company.

Shadi Mitwalli, Analyst

This is Shadi on for Quinn Bolton. Congrats on the strong results. My first question is on the guidance. Your Q3 guide implies a seasonally down Q4. And given all the progress you guys have been making and the edge AI tailwinds, they're still somewhat conservative. So just want to get your thoughts on maybe the puts and takes as we think about Q4.

Feng-Ming Wang, President and CEO

I believe that the seasonality we are expecting for Q3 and Q4 is broader than what we had last year, which shouldn't be surprising. When you examine many of the products, some are influenced by consumer trends, and that helps explain the seasonality we are projecting based on our guidance.

Shadi Mitwalli, Analyst

Got it. That makes sense. And then my follow-up is on the non-security camera portion of the IoT business. How does Ambarella view this segment growing over the next few years? And at what point might the non-security segment surpass the security camera segment of the IoT business?

Feng-Ming Wang, President and CEO

Yes. First of all, thank you for that question. I think that's important. Internally, we're looking at that also because all of the new applications we announced today, none of them is really on the traditional security camera business. In fact, from the drone robots to the portable video to the edge infrastructure, those are really the new market we have been talking about that we haven't shown much result until this quarter. And I think that enterprise or the enterprise security and home security continue to be a large portion compared to others, but I think that we do see that the growth rate on the non-security portion of the business will continue to outpace on the other side.

Louis P. Gerhardy, Vice President of Corporate Development

Yes. Just to be clear, Shadi, our security business, we expect to continue to deliver very good growth. But now you have these portable video and some of the robotics markets and other things kicking in that, as you observed, are causing our other IoT business outside of security to contribute very nice growth for us.

Operator, Operator

Our next question comes from the line of Liam Pharr with Bank of America.

Liam Yevgeny Pharr, Analyst

This is Liam on behalf of Vivek. There's been a lot of media reports recently about M&A and industry consolidation. And I was wondering if you're able to address kind of what role you expect industry consolidation to play and what your strategy looks like if you remain independent?

Feng-Ming Wang, President and CEO

We cannot comment on those rumors. However, I want to highlight that during today’s earnings call, the significance of our strategy regarding HAI is clear in the market. We are likely one of the few—if not the only company—shipping 36 million units of HAI SoC so far, making us a leader in that market. I believe that the rumors are rooted in our strength and focus on HAI, and this will continue to benefit us.

Liam Yevgeny Pharr, Analyst

And then just as a follow-up. In terms of kind of going back to the IoT and auto side, clearly a strong quarter. What does the sustainability look like of these growth drivers through 2026? And where should we kind of expect more of an upside trajectory on the IoT or on the auto side?

Feng-Ming Wang, President and CEO

On the automotive side, we are actively working to secure our first design win for Level 2 and Level 3 technologies. This effort is crucial for enhancing our growth trajectory in the automotive sector. Additionally, in the IoT space, we are experiencing substantial growth this year compared to last year, largely due to the increasing contributions from several products being adopted by our customers. We are confident that this growth will continue, and we will provide guidance for the upcoming year. We firmly believe that both the automotive and IoT sectors will maintain their positive growth trends.

Louis P. Gerhardy, Vice President of Corporate Development

Yes. To provide more detail, it's not just a few markets driving our growth. Several years ago, we began with enterprise security followed by public safety and smart home applications, then moved into AI video telematics and commercial fleets, including in-cabin technologies like e-mirrors and driver monitoring. Recently, in IoT, we've seen advancements in portable video, which encompasses body-worn cameras, panorama cameras, and action cameras. We're now also entering the robotics space, starting with aerial drones that are anticipated to become significant. It's not a matter of just a couple of markets; it's about edge AI expanding into various vertical applications, which has been transforming our business.

Operator, Operator

Our next question comes from the line of Kyle Smith with Stifel.

Kyle Robert Smith, Analyst

This is Kyle Smith on for Tore Svanberg at Stifel. Congratulations on the strong quarter. So I think it's pretty clear that the strong revenue be in guide is stemming from tangible design wins and product momentum. But that being said, could you provide more commentary on the process that management uses could check for any potential demand pull-ins related to the tariff environment? Are you speaking directly with customers or distributors, monitoring yourself for any irregularities? Or is it kind of a mix of multiple factors?

Feng-Ming Wang, President and CEO

Yes. I think that's a very important topic internally because we're all going through this industry-wide inventory correction for the last three years. And every time we're seeing some high growth areas, the first reaction is we better talk to customers. So in the past few years, we built a relationship with all the customers and also our distributor to make sure that we review inventory every month. And then based on that, we try to decide whether we are seeing any inventory build. So far, I think throughout the process with this internal check, we haven't seen any inventory build beyond the normal practice. And also, personally, every time I have a meeting with my peers in our customer base, one of the topics is always about supply chain and about the supply. And I got no feeling that nobody tells us that they are building excessive inventory worrying about the geopolitical situation. So with that, that's just from the feedback from customers. But more internal insight, we build some kind of a checkpoint to understand, look at the customers, their older patterns, and then whether that's associated with any product ramping up. So if there's any indication of actual inventory build, internally we have some data now. So far, based on all of this internal and external discussions, I think that we feel quite confident that we haven't seen any meaningful inventory buildup in our customers.

Kyle Robert Smith, Analyst

Perfect. And you mentioned a lot of really exciting design wins in the prepared remarks. I'm curious what the customer response has done to the Cooper development platform, particularly within these new and emerging markets? And are there any specific components of the platform showing outsized positive feedback?

Feng-Ming Wang, President and CEO

I think, first of all, the feedback from our Cooper development platform is very positive. Not only does it help our customers move from one chip to another easily because the Cooper platform covers all the chips that we develop. So for our customers, it's really become a powerful tool for them to develop the product once and they can use the same product for many different chips under Ambarella. So that's one of the most important things. But because of the investment, now we can easily enable our customers to play with our SDK and also play with all the new networks we put into our model garden and also enabling them to learn how to use our compiler to compile the new network to our hardware. All of those features are integrated into this Cooper platform. So of course, I'm not saying that it is perfect, but definitely benefit to customers, they will continue to give us great feedback about how we can improve it so that they can enjoy the platform more.

Kyle Robert Smith, Analyst

Perfect. And if I could just sneak one more in. Contemplating this really outsized revenue growth, do you continue to expect non-GAAP OpEx to grow at around 10% annually? Or should we maybe bake in a little bit higher OpEx going forward?

John A. Young, CFO

Yes, thanks for the question. I think it's reasonable to expect growth a little higher than 10%. Year-to-date, we're seeing about 12% growth, and I believe we'll likely remain within that range for the entire year.

Operator, Operator

Our next question comes from the line of David O'Connor with BNP Paribas.

David O'Connor, Analyst

Going back to the automotive side and ADAS, the adoption rates for L2+ have slowed this year due to software readiness and OEMs focusing on pricing. As we are in August and from your recent discussions with customers, can you share any updates on their perspectives regarding adoption for their next models? Are there any indications that they might be accelerating it? Any changes you're observing that could set the stage for potential wins with C3?

Feng-Ming Wang, President and CEO

I believe the situation we discussed is still ongoing. We are seeing OEMs focusing more on lower-end Level 2+ systems rather than the higher-end options, as they prioritize cost over additional features. Recently in China, we have noticed a similar pattern as the government emphasizes safety in driving, which has become the primary focus. Overall, the trend in autonomous driving is leaning towards enhancing safety and aiming for lower functional performance. For instance, we recently secured a design win for an 8 megapixel ADAS in China. This indicates that while we are continuing to develop various features, there are significantly more opportunities in the low-end Level 2+ and ADAS segments.

Louis P. Gerhardy, Vice President of Corporate Development

Yes, David. We still see very significant lifetime revenue opportunities in the autonomous vehicle market. However, as Fermi mentioned earlier, decisions are made less frequently. The market can experience delays, as you noted, resulting in a longer time to generate revenue. Consequently, other edge AI markets have rapidly caught up and are now experiencing significant growth for us. Nonetheless, we remain committed to our products and focused on achieving these wins, even though the frequency of securing them has decreased.

David O'Connor, Analyst

That's very helpful. Maybe one for John. Just on the incremental kind of growth year-over-year. With the new guide, you're kind of up maybe $95 million, $100 million, something like that, for the year. Is there any way you can kind of split that out in terms of units versus ASP or content just kind of how you would break that down as kind of a percentage, half of it unit-growth, half ASP. Any kind of steer that would help us there size the kind of difference between those two drivers?

John A. Young, CFO

Yes. Thanks, David. I think what we've been seeing throughout this year is that growth is roughly 50-50 between ASP and unit growth.

Operator, Operator

Our next question comes from the line of Gus Richard with Northland Capital Markets.

Auguste Philip Richard, Analyst

Congratulations for the strong results. Just in the IoT market, could you give us a split between the security applications and the non-security applications and which of the non-security applications are growing most rapidly?

Feng-Ming Wang, President and CEO

So in the non-security application, I think that portable video definitely grows the fastest. In fact, Insta360 using a CV5 to build their next-generation sports camera as well as the panorama 360-degree camera, and the ASP is high and the unit number continues to grow. So that definitely is a faster-growing market. I won't be surprised if we see a lot of growth in the future, see some growth on the drone side too because the ASP and unit number growth can be significant, too.

Louis P. Gerhardy, Vice President of Corporate Development

I guess, the auto business in Q2, I think John mentioned, grew in the mid-single digits and IoT grew in the mid-teens, and that would put auto in the low 20% range as a percent of revenue in IoT the balance.

Auguste Philip Richard, Analyst

Got it. And then just in terms of the IoT business, you've got a wide diversity of applications, and I would imagine that your customers need support from field application engineers. And I'm just wondering, is that a limitation? Is that something that you need to bolster to help accelerate growth? How are you thinking about customer support in that regard?

Feng-Ming Wang, President and CEO

So first of all, a unified hardware and software platform we just mentioned is really helpful because that means our field engineering can easily switch from one customer to another customer. Although they may be a different application, different products, but the fundamental hardware and software are almost the same. So from that point of view, we definitely can leverage our field engineers in different applications. But you are right that our revenue growth, and when we're looking at the different customer base, we continue to add to our field engineering, which is part of our growth plan that John highlighted just a few minutes ago.

Operator, Operator

Our next question comes from the line of Martin Yang with Oppenheimer & Co.

Zhihua Yang, Analyst

So on the strength you called out on the portable video products, can you tell us if the strength is driven by a single key customer? Or have you expanded your customer base with new design wins with new OEMs in the past quarter?

Feng-Ming Wang, President and CEO

Well, in fact, we continue to have a multiple customer base in this space. However, Insta360 definitely is the largest one that we mentioned because they switched from the H22-based video processor only solution last year to this year's CV5-based solution, and the ASP growth definitely is one of the main reasons we continue to see the growth from them. But we continue to engage with multiple portable video players throughout our career.

Louis P. Gerhardy, Vice President of Corporate Development

Martin, I think you're familiar with the company, but we're selling into like seven different portable video product lines that would include action cameras, sports, panorama, but also body-worn webcams, video conferencing, and now aerial drones. So it's a lot of different product categories. It's not just a few.

Zhihua Yang, Analyst

A follow-up question on Insta360. So in your guidance, do you assume business as usual with them without any potential impact from their ongoing lawsuit in the U.S.?

Feng-Ming Wang, President and CEO

Well, first of all, yes, we look at it. And it's not in our position to make a judgment on the outcome of the lawsuit and we'll leave that to the two parties. Our assumption is based on the POs we receive from our customers, and that's the only thing we are counting on to forecast our business.

Operator, Operator

Our next question comes from Richard Shannon with Craig-Hallum.

Richard Cutts Shannon, Analyst

Let me ask a question. First one is on the broader edge AI opportunity. You talked about your first design win hoping to ship near the end of this fiscal year. Maybe you could describe what the pipeline looks like. Maybe describe it, even quantify a number of design opportunities and any maybe new applications you're seeing here versus what you described in the past.

Feng-Ming Wang, President and CEO

Edge infrastructure, right?

Louis P. Gerhardy, Vice President of Corporate Development

I think, Richard, was your question about just edge IoT overall or just the infrastructure?

Feng-Ming Wang, President and CEO

Exactly. We have been working on the N1-655 product and have discussed it with many customers. This design win is the first one we can disclose. We are engaging with both new and existing customers regarding potential design wins. You can expect us to continue sharing our progress in this market. There are many different types of potential appliances that can be developed. Generally speaking, these appliances aim to aggregate various edge endpoints and utilize advanced AI models to provide different services. Overall, this describes the opportunities available. These appliances will primarily focus on running large language models or vision leverage models, which our customers are interested in, rather than traditional computer vision components.

Louis P. Gerhardy, Vice President of Corporate Development

Richard, we've talked about a SAM for this market of in this year, this fiscal '26 being around $125 million and in five years, approaching $500 million, and we feel those figures are conservative. We're still learning about the market. As Fermi said, this is our first design win, but we're pretty excited about the level of interest from customers, both new customers and existing customers for Ambarella.

Feng-Ming Wang, President and CEO

And the success of this market will continue to drive up our average selling price.

Richard Cutts Shannon, Analyst

Okay. Great. Second question here is on the portable video opportunity here and following on the questions and responses from the past couple of questions here. To what degree are these opportunities or applications more consumer-oriented versus enterprise in nature?

Louis P. Gerhardy, Vice President of Corporate Development

Well, it depends on the market. But I'd say overall, across all seven that I just described for like Insta360, more weighted to consumer. And but there are still being sold into enterprise applications. For example, body-worn cameras is a market that at least today is very heavy enterprise and public safety driven, and that's one of the categories. But if you switch over to some of the other portable video markets, it might be more on the consumer side. And overall, I'd say they are weighted more heavily to the consumer side, which is one of the factors that allows them to get to revenue faster.

Operator, Operator

Thank you. Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Fermi Wang, CEO, for closing remarks.

Feng-Ming Wang, President and CEO

And thank you for joining us today. We are going to see you next time for sure. Thank you.

Operator, Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.