Shares of the Santa Clara, Calif., company rose 9.2% to $162.60 at last check.
Ambarella also announced an agreement with Dongfeng Motor Group on Wednesday.
Analyst John Vinh, who has a $185 price target on the stocks, said in a research note that he sees "multiple favorable tailwinds" related to the adoption of computer vision within the security and automotive end markets amid limited competition with HiSilicon, a semiconductor company owned by Chinese telecommunications Huawei that was hit by U.S. government sanctions last summer.
He also said he has increasing confidence in front-facing Advanced driver-assistance, or ADAS, systems adoption and noted that "with its highly differentiated CV/AI assets and IP, and adoption in auto tech, we believe AMBA represents one of the most attractive M&A targets in semiconductors."
"With limited competition, we expect AMBA to continue to gain share in and outside of China globally and to benefit from a more favorable pricing environment," Vinh said.
The analyst said with the company finally getting traction in front-facing ADAS applications within automotive, "we believe this will ultimately be the tipping point for potential acquirers to bid for AMBA."
Vinh said he sees Advanced Micro Devices (AMD) - Get Advanced Micro Devices, Inc. Report, Nvidia (NVDA) - Get NVIDIA Corporation Report, NXP Semiconductors (NXPI) - Get NXP Semiconductors NV Report, and Samsung as potential acquirers.
Separately, Ambarella said that it was partnering with Dongfeng Fengshen (Aeolus), a mid-to-high-end brand of the Dongfeng Motor Group, to build a Driver Monitoring System (DMS) based on Ambarella’s CV25 AI vision SoC and development platform.
Earlier this month, Ambarella beat Wall Street's second-quarter earnings expectations.
The company also said that demand is high and that revenue could reach a five-year high for the current quarter.