Nvidia (NASDAQ: NVDA) stands as the top provider of premium graphics processing units (GPUs) used in data centers, crucial for training artificial intelligence (AI) applications. Meanwhile, Uber Technologies (NYSE: UBER) leads the globe in ride-hailing and operates the popular food delivery service, Uber Eats.
So, what unites these two giants? Uber has teamed up with 14 companies to develop autonomous driving technologies as it shifts focus away from human drivers. Both autonomous driving capabilities and robotics hinge heavily on AI, an area where Nvidia has also made significant strides by creating its own autonomous driving platform.
This collaboration may shed light on their shared investment in Serve Robotics (NASDAQ: SERV), a firm with a market capitalization of $500 million known for its development of autonomous delivery robots. Collectively, Nvidia and Uber control over 20% of Serve’s outstanding shares, indicating strong confidence in the company’s future. If you’re thinking about investing, here’s what you should consider.
Image source: Getty Images.
The Potential of Delivery Robots in Last-Mile Logistics
Current methods for last-mile delivery are often inefficient. Services like Uber Eats and DoorDash utilize vehicles that are much larger than necessary for delivering small items. In a recent presentation, Serve Robotics raised an intriguing point: Why transport two-pound burritos in two-ton cars?
In contrast, robots and drones could provide a more efficient solution. Serve notes that the costs of hardware and software for AI and autonomous technology are declining, making robot delivery a more financially viable option. They predict that, with increased adoption, their robots might eventually deliver orders for as little as $1 each.
Using level 4 autonomy, Serve’s robots can navigate sidewalks in designated areas without human assistance. Since early 2022, these robots have completed over 50,000 deliveries for more than 400 restaurants in Los Angeles, boasting an impressive reliability rate of up to 99.94%. This makes them ten times more reliable than human couriers, according to Serve.
The latest Gen3 robot, the most advanced yet, can reach speeds of 11 miles per hour. Powered by Nvidia’s Jetson Orin technology, Gen3 is five times more efficient than its predecessors. This advancement results in faster delivery times, larger coverage areas, and lower operational costs—estimated at a 50% reduction.
Under an agreement with Uber, Serve plans to roll out 2,000 new robots by the end of 2025, allowing them to expand into new locations in California and Texas. This initiative also helps Uber cut costs by decreasing reliance on human delivery drivers.
Serve’s Financial Growth and Challenges
In the third quarter, Serve reported a modest revenue of $221,555, marking a significant 254% increase from the same quarter last year. However, that figure fell sharply from the $468,375 earned in the second quarter of 2024.
This decline in revenue was primarily due to the conclusion of a partnership that generated services revenue from Magna International, a $13 billion automotive components supplier and Serve’s partner for their upcoming robots. The two companies had a licensing agreement, which is now terminated, leaving Serve reliant solely on delivery revenue as it scales up.
Currently, Serve is incurring heavy losses. It reported $8.3 million in operating expenses in Q3, predominantly for research and development. With such low revenue, their net loss for the quarter reached $8 million, totaling $26.1 million so far this year.
With only $50.9 million in cash reserves, Serve’s funds will likely run out within 18 months if the spending continues at this rate. To mitigate this, Serve established a new at-the-market stock offering in November, allowing it to potentially raise $100 million through share sales. However, this would dilute current shareholders’ stakes.
Investors’ Stakes in Serve Robotics
Serve Robotics became its own entity in 2021 after being spun off from Postmates, which Uber had acquired. Uber currently holds a 12% stake, making it the largest shareholder in Serve.
Nvidia entered the investment scene later, holding an 8% stake in Serve as of 2022. Both companies face the risk of losing value if Serve continues to issue new shares unless they choose to take part in future fundraising efforts. However, participating may not be financially prudent based on the company’s current valuation.
Serve’s price-to-sales (P/S) ratio stands at a striking 196, making it significantly more expensive than Nvidia.
SERV P/S Ratio data by YCharts.
According to Wall Street projections (as reported by Yahoo), Serve could earn $13.3 million in revenue by 2025 due to its 2,000 robot deployment. Given their estimated revenue of $1.9 million for 2024, this represents a remarkable growth of 600%.
This forecast results in a forward P/S ratio of 31.7, which, while more reasonable, still appears steep. For those considering investment based on Nvidia and Uber’s involvement, it’s crucial to only invest funds you can afford to lose.
Serve cites a potential market in the robot and drone delivery space exceeding $450 billion by 2030. Hence, even a small investment could yield substantial returns if the company succeeds.
Is Investing $1,000 in Serve Robotics a Smart Move?
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Anthony Di Pizio does not hold any positions in the stocks mentioned. The Motley Fool has positions in and recommends DoorDash, Nvidia, Serve Robotics, and Uber Technologies. The Motley Fool also recommends Magna International. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
