Ambarella Inc (NASDAQ:AMBA) stock surged by more than 8% to as high as $43.99 during regular trading hours today after Morgan Stanley analysts said they upgraded the stock from Equal-weight to Overweight, although they maintained their $55 per share price target, which represents potential upside of more than 30%. They described the company as “the leader in video processing solutions.”

Ambarella

Ambarella maintains leadership

Analyst Joseph Moore and team said they continue to believe Ambarella has maintained its leadership in video processing in the area of high-end cameras, which is why the company’s stock has been so susceptible to volatility related to GoPro’s business. They were on the sidelines because they thought the company’s multiple had gotten too high because of customer concentration.

Since then though, Ambarella stock has plunged 65% from its highest levels, and the Morgan Stanley team thinks the problematic business trends are bottoming out. They gave three main reasons for taking a more bullish view on the company now.

Headwinds beginning to abate

They believe two of the biggest headwinds Ambarella has been facing were problems at GoPro and government surveillance in China, but they think these issues have bottomed and will likely become tailwinds by the second half of this year. They report that China surveillance customer checks “have been encouraging,” and they’re no longer building any revenues from current GoPro products as they don’t expect any revenues from the action camera maker until the product refresh in the second half of the year.

The Morgan Stanley team particularly likes Ambarella’s opportunities in other areas like autos, drones, consumer surveillance, and wearables, all of which they think will push strong growth.

Ambarella to push out new computer vision chips

Moore and team note that the company is preparing to release new computer vision chips this year to tap the driver assistance market, although they see several other potential applications for the technology. They said this technology changes the game while also adding strategic value to the company and triggering an expansion in its multiple.

Specifically, they noted that moving into computer vision transforms Ambarella from “an enabler of key niche markets to a major player in markets deemed critical for the largest semiconductor companies.” They note that it may take years for the chip maker to see revenues from the ADAS segment, they believe progress in this area will significantly enhance its strategic position.

They expect the company’s multiple to expand on the back of a resumption in confidence that the company in growth and “recognition of the potential for computer vision to provide another substantial runway for growth and adding to strategic value.