Chipmaker Ambarella gets bump from GoPro

Ambarella chip inside a GoPro Hero3 camera.
Justin Solomon | CNBC

Chipmaker Ambarella may be small relative to its competitors, but the company is attracting more interest due to a surging stock and a few high-profile clients.

The company makes chips that process high-quality video for a variety of companies including camera maker GoPro—whose stock has surged since going public last week—and search giant Google. It's still small—its market cap is about $900 million—but the stock has soared more than 95 percent in the past 12 months as investors cheered its growth prospects.

Fermi Wang, the company's CEO, says he first met GoPro founder and CEO Nick Woodman five years ago at the Consumer Electronics Show.

"Since then, we have been working together closely with the GoPro team on all of their camera products," Wang tells CNBC. Wang founded Ambarella in 2004, and the company went public in 2012.

Kevin Cassidy at Stifel Nicolaus, who covers Ambarella, estimates that GoPro now represents about 25 percent of the company's business.

On Google wearables, Cassidy says Ambarella won a contract to be part of Google's "Helpouts" services, which include a customer service person helping with fixing your car, or taking Yoga or Piano lessons through a small video camera linked to a Wi-Fi or Bluetooth network.

Read MoreCramer: GoPro stock is in a "sweet spot"

The main driver for Ambarella's business, however, is the security and surveillance market, said Wang. Clients such as FLIR Systems and leading surveillance equipment suppliers like Hikvision rely on Ambarella's technology.

IP security cameras constitute 45 percent of its business, and that segment—which is growing 25 percent year-over-year—is "a bigger growth engine than GoPro," Cassidy said. Axis Communications of Sweden is its biggest customer, and it has some smaller clients in China, he said.

Ambarella & GoPro cohabitate
Ambarella & GoPro cohabitate

Dashboard cameras are for now a small part of its business, but growing popularity in China and Eastern Europe and the possibility that more auto manufacturers could begin installing them points to another potential big growth engine for the company, Cassidy said.

Wang also believes there is opportunity in the growing market for drones, as manufacturers increasingly look to equip these unmanned aerial vehicles with miniature HD-quality cameras.

Not everyone sees a completely rosy growth forecast for the company, though. After the stock's strong run, analysts at Deutsche Bank now argue that much of the good news in this story is already priced in. Plus, the entire semiconductor market has been on a tear lately, and some analysts believe that run is about over.

Read MoreWhy semiconductor stocks may be ready for a fall

Also, the company specializes in a very competitive market, where it has to go head-to-head with rivals such as Texas Instruments and Xilinx.

But other analysts such as Suji De Silva of Topeka Capital Markets say Ambarella has competitive advantages, for example chips that are more power efficient than competitors.

Bulls on the stock are also fans of Ambarella's management team. Wang boasts a strong background in semiconductor design, and he has already founded and sold one company called Afara Websystems.

So is Ambarella an acquisition target? Cassidy thinks that tech giants or other chip companies could be interested in buying the company.

Cassidy says that the Wang and his partner have sold two other companies and he sees Ambarella as a "possible acquisition candidate."

"Qualcomm, Nvidia or Intel are possible candidates, and I wouldn't rule out Google or Facebook, either," he said

A representative for Ambarella did not respond to requests for comment on whether they'd be willing to be acquired.

By CNBC's Mark Berniker and Josh Lipton. Follow them @markberniker and @CNBCJosh

Ambarella chips make waves
Ambarella chips make waves