Serve Robotics (SERV 2.22%) develops autonomous robots that have already completed thousands of food deliveries on behalf of platforms like Uber's Uber Eats. In fact, the company has a contract with Uber to deploy thousands of new robots by the end of 2025, which will pave the way for an expansion into new geographic markets.
Serve's robots are powered by Nvidia's (NVDA -1.76%) Jetson Orin platform, which provides the hardware and software required to run advanced robotics and computer vision. Nvidia was also one of the largest shareholders in Serve, until the chipmaker sold its entire stake at the end of 2024.
Serve stock has plunged by 65% since mid-February, which is when investors learned of Nvidia's exit. Should investors treat this as a buying opportunity, or should they sit alongside Nvidia on the sidelines?
Image source: Getty Images.
Serve is gearing up for a record year in 2025
Serve thinks there is an untapped market for robotic and drone delivery that could be worth a staggering $450 billion by 2030. Existing last-mile logistics networks rely on two-ton cars with human drivers to deliver two-pound food orders, which Serve believes is very inefficient. The company says the falling cost of artificial intelligence (AI) development and hardware components will accelerate the adoption of robotic delivery solutions instead.
According to the company, Serve's self-driving robots have already completed over 50,000 deliveries on behalf of 1,000 restaurants across Los Angeles since 2022, with 99.65% accuracy. That makes them 10 times more reliable than human delivery drivers -- to put it another way, the robots have made 90% fewer mistakes so far.
Serve's latest Gen3 robots use level 4 autonomy, which means they can drive on footpaths within designated areas without human intervention. Gen3 robots have a top speed of 11 miles per hour, making them 60% faster than the previous generation. They also have 67% more battery capacity so they can operate for longer periods of time, and they are fitted with five times more computing power thanks to Nvidia's Jetson Orin package.
Under Serve's contract with Uber Eats, it will produce 2,000 Gen3 robots in 2025 and deploy them in new markets like Miami, Atlanta, and Dallas. Serve is using a highly experienced manufacturing partner called Magna International, which is a $10 billion producer of parts and components for the automotive industry. Combined with the fact that Serve is producing robots at scale for the first time, it believes Gen3 will be 65% cheaper to bring to market than previous generations.
NASDAQ: SERV
Key Data Points
Serve's revenue is soaring, but its losses are piling up
Serve generated a record $1.8 million in revenue during 2024, which was a whopping 773% increase compared to 2023. But there's a caveat: Almost $1.2 million of that revenue was attributed to a series of one-off, non-recurring software services that Serve provided to its robot manufacturing partner, Magna International.
Only $626,580 of Serve's 2024 revenue actually came from its core business that includes making deliveries, but that number still tripled compared to the prior year.
With that said, Wall Street's consensus estimate (provided by Yahoo!) suggests Serve's revenue could soar by 387% to reach $8.8 million during 2025, thanks to the deployment of the 2,000 new robots under the Uber Eats deal. In other words, its core business is set to scale dramatically this year.
Serve's biggest challenge will be keeping its losses in check. The company was in the red to the tune of $39.2 million in 2024 on a GAAP (generally accepted accounting principles) basis, which followed a $24.8 million loss in 2023. Growing losses can be expected from a start-up that is still trying to scale its product, because it takes time for revenue to catch up to all of the investments in marketing and research and development.
However, Serve ended 2024 with just $123 million in cash on hand, so it can't keep burning money at the current pace in perpetuity. The company managed to raise a further $80 million from investors in January to shore up its balance sheet, but every time it pulls that lever, it dilutes existing shareholders, which negatively affects their potential returns.
Serve stock is extremely expensive, which could prevent further upside
Nvidia held 3.7 million shares in Serve Robotics before selling its entire stake, which would have been worth around $28 million at the current price per share of $7.66. We don't know why Nvidia exited its position, but valuation might have been a contributing factor.
Based on Serve's 2024 revenue, its stock trades at a price-to-sales (P/S) ratio of 156.9. It's hard to put into words how extreme that valuation is, but for some perspective, it's almost seven times higher than Nvidia's P/S ratio of 23.1:
Data by YCharts.
Does Serve deserve to trade at such an eyewatering premium to one of the world's highest-quality companies? In my opinion, absolutely not. Its valuation looks a little more palatable if we calculate it using Wall Street's forecasted revenue for 2025, because it places the stock at a forward P/S ratio of 48.7. However, it still means Serve stock would have to decline by another 50% this year just to trade in line with Nvidia's current P/S ratio.
With all of that said, Serve could be in a great position to capture a sizable chunk of its $450 billion addressable market by 2030 if it can successfully scale its business. If that happens, its current stock price might look like a bargain when investors look back on this moment.
However, that doesn't reduce the risk investors are taking by paying such a steep price for Serve stock today. As I mentioned, there is a possibility it could decline by 50% this year even if it meets Wall Street's revenue forecast, simply because its valuation is so high right now.
As a result, the recent 60% plunge in Serve stock probably isn't a buying opportunity at this stage.
