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Ambarella Inc (AMBA): Hedge Funds Cashing Out

In this article we will take a look at whether hedge funds think Ambarella Inc (NASDAQ:AMBA) is a good investment right now. We check hedge fund and billionaire investor sentiment before delving into hours of research. Hedge funds spend millions of dollars on Ivy League graduates, unconventional data sources, expert networks, and get tips from investment bankers and industry insiders. Sure they sometimes fail miserably, but their consensus stock picks historically outperformed the market after adjusting for known risk factors.

Is Ambarella Inc (NASDAQ:AMBA) a healthy stock for your portfolio? Money managers are becoming less confident. The number of bullish hedge fund bets went down by 5 lately. Our calculations also showed that AMBA isn’t among the 30 most popular stocks among hedge funds (click for Q1 rankings and see the video for a quick look at the top 5 stocks). AMBA was in 21 hedge funds’ portfolios at the end of March. There were 26 hedge funds in our database with AMBA holdings at the end of the previous quarter.

Video: Watch our video about the top 5 most popular hedge fund stocks.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 58 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that’ll significantly underperform the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 36% through May 18th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to.

Philip Hempleman Ardsley Partners

Philip Hempleman of Ardsley Partners

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, 2020’s unprecedented market conditions provide us with the highest number of trading opportunities in a decade. So we are checking out trades like this one. We interview hedge fund managers and ask them about their best ideas. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. With all of this in mind let’s take a glance at the fresh hedge fund action surrounding Ambarella Inc (NASDAQ:AMBA).

What does smart money think about Ambarella Inc (NASDAQ:AMBA)?

At Q1’s end, a total of 21 of the hedge funds tracked by Insider Monkey were long this stock, a change of -19% from one quarter earlier. On the other hand, there were a total of 19 hedge funds with a bullish position in AMBA a year ago. With the smart money’s positions undergoing their usual ebb and flow, there exists an “upper tier” of notable hedge fund managers who were upping their holdings considerably (or already accumulated large positions).

Among these funds, Renaissance Technologies held the most valuable stake in Ambarella Inc (NASDAQ:AMBA), which was worth $72.7 million at the end of the third quarter. On the second spot was D E Shaw which amassed $25.7 million worth of shares. Columbus Circle Investors, D E Shaw, and Millennium Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position P.A.W. CAPITAL PARTNERS allocated the biggest weight to Ambarella Inc (NASDAQ:AMBA), around 3.27% of its 13F portfolio. Potrero Capital Research is also relatively very bullish on the stock, setting aside 1.93 percent of its 13F equity portfolio to AMBA.

Due to the fact that Ambarella Inc (NASDAQ:AMBA) has faced bearish sentiment from the aggregate hedge fund industry, we can see that there exists a select few hedgies who were dropping their positions entirely heading into Q4. Interestingly, Matthew Hulsizer’s PEAK6 Capital Management said goodbye to the biggest investment of the “upper crust” of funds watched by Insider Monkey, worth close to $2.9 million in stock. Brandon Haley’s fund, Holocene Advisors, also said goodbye to its stock, about $2.4 million worth. These moves are important to note, as total hedge fund interest fell by 5 funds heading into Q4.

Let’s check out hedge fund activity in other stocks similar to Ambarella Inc (NASDAQ:AMBA). We will take a look at Sabre Corporation (NASDAQ:SABR), ABM Industries, Inc. (NYSE:ABM), Columbia Financial, Inc. (NASDAQ:CLBK), and SPS Commerce, Inc. (NASDAQ:SPSC). This group of stocks’ market valuations are similar to AMBA’s market valuation.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
SABR 30 134131 6
ABM 18 46833 6
CLBK 10 41683 -1
SPSC 16 137949 -8
Average 18.5 90149 0.75

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $90 million. That figure was $162 million in AMBA’s case. Sabre Corporation (NASDAQ:SABR) is the most popular stock in this table. On the other hand Columbia Financial, Inc. (NASDAQ:CLBK) is the least popular one with only 10 bullish hedge fund positions. Ambarella Inc (NASDAQ:AMBA) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 12.2% in 2020 through June 17th but beat the market by 14.8 percentage points. Unfortunately AMBA wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on AMBA were disappointed as the stock returned 5.8% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.

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Disclosure: None. This article was originally published at Insider Monkey.