So, here's a classic market puzzle for you. Ambarella Inc. (AMBA) just reported quarterly numbers that, on the surface, look pretty good. Revenue up, earnings beat, record year. And yet, the stock is getting hammered premarket. What gives?

Let's break it down. For the fourth quarter, Ambarella brought in $100.9 million. That's a solid 20.1% increase from the same time last year, and it actually beat what analysts were expecting. On the bottom line, they managed adjusted earnings of 13 cents per share, which also came in ahead of the consensus estimate of 10 cents. Not bad, right?

But the market is a forward-looking beast, and it seems to be focusing on a couple of other things. First, the profitability picture got a little fuzzier. The company's adjusted gross margin slipped to 59.8% for the quarter, down from 62.0% a year ago. For the entire fiscal year 2026, which ended January 31, that margin came in at 60.7%, down from 62.7% the prior year. In a world where investors are obsessed with efficiency and scaling profits, that's a detail that gets noticed.

The bigger story, though, is the full-year performance and what the company is saying about the road ahead. For fiscal 2026, revenue soared 37% to a record $390.7 million. The driver? Edge AI. According to CEO Fermi Wang, a whopping 80% of that revenue came from their Edge AI system-on-chips (SoCs).

"Our F2026 revenue grew 37%, achieving an annual revenue record," Wang said. "Edge AI SoCs represented 80% of revenue, all of which is generated from a broad range of physical AI applications leveraging our deep learning AI accelerator."

He painted a picture of a company deeply embedded in the practical, real-world applications of AI—think cameras, sensors, and devices that need to process information on the spot, not in the cloud. Wang touted "approximately $1 billion in cumulative edge AI revenue" and "more than 370 unique customer AI projects in production." That's the kind of traction that gets tech investors excited.

So why the stock drop? It often comes down to expectations versus reality, and guidance versus hope. For the coming year, fiscal 2027, Ambarella is forecasting total revenue growth of 10% to 15%. That's a significant deceleration from the 37% growth they just posted. It's still growth, mind you, but the market was probably hoping the pedal would stay closer to the metal.

Looking just at the next quarter, the company expects sales between $97 million and $103 million. The midpoint of that range is basically spot-on with what analysts were predicting. They also see adjusted gross margin landing between 59.0% and 60.5%, suggesting those margin pressures might persist in the near term.

Financially, the company ended the quarter with a healthy war chest of $312.6 million in cash and equivalents. They also had $48.0 million left in their stock buyback authorization, though they didn't repurchase any shares this past quarter.

The result of all this? Ambarella shares were down 10.44% at $63.50 in premarket trading. It's a sharp move for a stock that has actually climbed about 13% over the past year and has traded in a wide 52-week range between $38.86 and $96.69. That volatility is pretty standard for a tech company riding the AI wave, where sentiment can shift on a dime based on the nuances of an earnings report.

The takeaway? Ambarella is executing and has carved out a legitimate leadership niche in edge AI, a hot sector. But the market is signaling that it wanted either stronger future growth projections or clearer signs of expanding profitability. For now, investors are hitting the pause button, even as the company keeps building its AI empire.