The shares of chip maker Ambarella (AMBA) are falling after Pacific Crest downgraded the video processor maker to Sector Weight from Overweight. The firm believes that DJI, Ambarella's largest customer, may have obtained the video processor for its latest drone from a company other than Ambarella.

DJI DRONE: After speaking with DJI's customer service department, Pacific Crest analyst Brad Erickson believes that Spark, a drone launched last week by DJI, may not be utilizing Ambarella's video processor.

IMPLICATIONS: Ambarella's results probably will not be affected in the short-term by DJI's decision to obtain Spark's video processor from another supplier, Erickson stated. However, Ambarella's results could be significantly affected if the launch of Spark causes the sales of DJI's older drone, Phantom, to decline, the analyst stated. Additionally, if DJI decides not to utilize Ambarella's video processor in future drones, then Ambarella's results will be materially affected, Erickson warned.

VALUATION: Before today, Ambarella's stock had jumped 23% since Intel (INTC) agreed to acquire Mobileye (MBLY), Erickson noted. Although the rebound was "warranted" given the strengths of Ambarella's solution, the company probably won't obtain significant revenue from autonomous driving for three to four years, so the benefits it will receive from that segment are "now more appropriately priced in," and the stock's risk/reward ratio has "become more balanced," the analyst stated.

PRICE ACTION: In early trading, Ambarella sank over 6% to $60.93. Over the last three months, Ambarella shares are up about 8%.