When you dance in the realm of artificial intelligence (AI), there’s the heavyweight, Nvidia (NASDAQ: NVDA), and then there’s the rest of the world. Nvidia has carved itself as the vanguard of AI, with its graphics processing units (GPUs) becoming the Holy Grail for AI systems. Hence, every move Nvidia makes in the AI domain reverberates across the investor universe like a quake in the stock market landscape.
This tale unfolded earlier this year with SoundHound AI. As the news broke that Nvidia had dipped its toes into the waters of voice and audio recognition specialist, SoundHound AI’s stock took flight, soaring up to 93% in just a week.
Fast-forward to recent times, Nvidia once again took center stage by acquiring a significant share in Serve Robotics (NASDAQ: SERV). This strategic move propelled the stock into the exosphere. Let’s delve into why Nvidia set its sights on this company and whether it’s a constellation worth navigating for investors.
Serve Robotics sidewalk delivery robot. Image source: Serve Robotics.
Serve’d up hot
Serve Robotics labels itself as a “leading autonomous sidewalk delivery company.” With a modest debut on April 18, the company put forth 10 million shares of common stock at $4 per share. Initially shunning the limelight, the stock stumbled on its first trading day, closing down by 22%.
The company’s focus lies in the $450 billion market segment, utilizing robotics and drones for last-mile delivery. For instance, it estimates that the average distance for food deliveries in the U.S. spans 2.5 miles. By using autonomous robots, Serve anticipates reducing delivery costs to as low as $1, while curbing the greenhouse gas emissions linked to traditional vehicle deliveries.
Serve kicked off its fleet of sidewalk delivery robots in Los Angeles back in 2020. By the year’s end, these robots had already completed over 10,000 deliveries for Postmates, now a subsidiary of Uber Technologies.
Uber and Serve have inked a commercial partnership to roll out up to 2,000 delivery robots by 2025, a significant leap from Serve’s existing fleet of around 100. The expansion plans outline a minimum of 250 robots operational in Los Angeles by the first quarter of 2025, with expansion into new territories slated for Q2.
Not just Nvidia
In a regulatory filing unveiled on July 18, Nvidia disclosed its hefty ownership of over 3.7 million shares in Serve Robotics, translating to a 10% stake in the company, valued then at approximately $10 million. The news of Nvidia’s involvement ignited interest in the tiny player, propelling its shares upwards by a staggering 335% (as of the market close on Thursday).
Recently, Serve announced a partnership with Shake Shack to fulfill food orders through Uber Eats in Los Angeles. Securing a prominent fast-casual chain like Shake Shack was a feather in Serve’s cap, bolstering its footprint in the food delivery domain.
Following this triumph were Serve Robotics’ second-quarter financial results, which surpassed expectations. The company raked in revenue of $470,000, including $300,000 from Magna, a leading auto parts supplier, for licensing its robotic technology. Delivery revenue spiked by 178% year over year and 80% sequentially, amounting to $170,000. Simultaneously, the gross margin for the segment displayed an 85% improvement year over year and a 64% leap quarter over quarter.
A robust operational performance played a pivotal role in driving its financial feats. Serve’s daily supply hours averaged at 385 during the quarter, marking a 106% rise year over year and 28% progression sequentially. The company also augmented its active daily robots by 85% year over year and 23% sequentially.
Should investors follow Nvidia?
While Nvidia’s investment in Serve Robotics stands out, it’s crucial to view it in context. At the conclusion of the second quarter, Serve represented less than 2% of Nvidia’s AI-focused arsenal, with Arm Holdings commanding a substantial 82% stake.
With a market cap circling around $422 million, Serve Robotics teeters as a small-cap player yet to chart a profitable course. Therefore, investing in Serve translates to traversing a path fraught with volatility and risks far surpassing those accompanying an investment in Nvidia. The matter of valuation adds another layer of complexity as Serve’s stock presents a forward sales multiple of 259 times, in stark contrast to Nvidia’s 25 times, a comparatively cost-effective delineation considering Nvidia’s explosive growth trajectory.
For potential investors eyeing a slice of Serve Robotics, a modest investment befitting its risky nature would be prudent. Alternatively, owning Nvidia stock can serve as a proxy route to capitalizing on Serve’s potential advancements.
Should you invest $1,000 in Serve Robotics right now?
Before diving into the world of Serve Robotics stock, it’s wise to ponder this:
The Motley Fool Stock Advisor analyst squad has pinpointed what they view as the 10 best stocks for investors to seize now… and Serve Robotics didn’t make the cut. The stocks that made the elite list are primed to deliver monumental returns in the forthcoming years.
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Disclaimer: The author has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia and Uber Technologies. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.