Nvidia and Uber Are Backing This $700 Million Artificial Intelligence (AI) Stock. Should You?

Serve Robotics (NASDAQ: SERV) is a developer of autonomous last-mile logistics solutions. The company has a major deal with Uber Technology's (NYSE: UBER) Uber Eats food delivery platform, which will see thousands of its self-driving robots deployed across U.S. cities in 2025.

Those robots are built using hardware and software components from Nvidia (NASDAQ: NVDA), which is the world's leading supplier of chips for artificial intelligence (AI) development.

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But Uber and Nvidia haven't just made deals with Serve. They are also the company's largest shareholders, which means they have a direct stake in its long-term success. With a market capitalization of just $700 million as of this writing, Serve could have incredible upside potential if it executes on its strategy. Here's what you need to know if you're thinking about following Nvidia and Uber into the stock.

Image source: Getty Images.

A potential $450 billion opportunity

Why do consumers use 2-ton cars to deliver 2-pound burritos? It's a thoughtful question Serve posed to investors in a recent presentation. The company believes robots and drones are better options, and they are rapidly becoming more economical as the cost to develop technologies like artificial intelligence (AI) comes down.

Serve estimates its robots will eventually operate at a cost of as little as $1 per delivery at scale. They already use Level 4 autonomy, meaning they can drive on sidewalks in designated areas safely without human intervention. The company's robots have delivered more than 50,000 orders on behalf of 400 restaurants across Los Angeles since 2022. According to Serve, those deliveries were completed with 99.94% accuracy, making them 10 times more reliable than human drivers.

Serve's latest Gen3 robot is powered by Nvidia's Jetson Orin platform, which includes all the hardware and software it needs to run advanced robotics and computer vision. Gen3 is 5 times more powerful than the previous generation, which translates into a 50% reduction in operating costs. In other words, its faster top speed, wider range, and longer operating time make it far more efficient.

Serve will deploy 2,000 robots by the end of 2025 under its deal with Uber Eats. It will involve an expansion into other California cities, in addition to Dallas and Fort Worth in Texas. If this program is successful, Uber could save significant amounts of money by shifting more deliveries to autonomous robots instead of human drivers. But that's only the beginning -- Serve believes autonomous last-mile logistics could be a $450 billion opportunity by 2030.

Serve is growing quickly, but it's walking a financial tightrope

Serve generated $221,555 in revenue (that's right, less than one-quarter of $1 million) during the third quarter of 2024. It represented 254% growth from the year-ago period, but it was also down by more than half from the second quarter three months earlier, when the company delivered $468,375 in revenue.

Here's why: Serve selected Magna International as its manufacturing partner for the 2,000 robots it plans to build this year. When the partnership was signed last year, it included a licensing deal in which Magna would pay Serve a $1.2 million fee to use its software in other segments of the robotics industry (as long as it isn't used to compete with Serve).

That fee was fully realized in the second quarter, leaving Serve with just its delivery revenue alone in Q3, which explains the big sequential drop.

Serve is currently walking a financial tightrope, because it's burning through cash at an alarming rate. It spent $25.3 million during the first three quarters of 2024, most of which went toward research and development. Since the company generated a minuscule amount of revenue, its net loss for the period came in at a whopping $26.1 million.

Serve has just $50.9 million in cash on hand, which will be wiped out within the next 18 months if it doesn't cut back on its spending (or find more revenue). However, the company established an at-the-market equity facility in November, which will allow it to raise a further $100 million by selling new shares to investors. This will provide a further cash runway, but will also dilute existing shareholders.

Over 20% of Serve's outstanding shares are held by Nvidia and Uber

Serve Robotics became an independent entity in 2021, after Uber acquired its parent company, Postmates. However, as part of the spinoff, Uber retained a stake in Serve and it currently holds around 12% of its outstanding shares.

Nvidia, on the other hand, has invested in Serve since 2022, and now owns 8.4% of its outstanding shares.

But before investors rush to join Uber and Nvidia as a Serve shareholder, they should carefully examine its valuation. Based on the company's trailing-12-month revenue and its market capitalization of around $700 million, its stock trades at a mind-boggling price-to-sales (P/S) ratio of 336. That's a staggering 11 times higher than Nvidia's P/S ratio.

SERV PS Ratio data by YCharts

Nvidia has a decades-long track record of success, with a rock-solid balance sheet and more than $100 billion in annual revenue. Not to mention, it's a highly profitable company. There is no rational case for Serve stock to trade at such a premium to Nvidia stock.

With that said, Wall Street's consensus forecast (provided by Yahoo) suggests Serve's annual revenue could soar by 598% to $13.3 million during 2025, assuming it successfully deploys its 2,000 robots and ramps up deliveries under the deal with Uber. Based on that potential revenue figure, Serve stock trades at a forward P/S ratio of 54.

Although that's a more reasonable valuation, it's still incredibly expensive, so there is a real risk of a steep correction in the stock at some point this year. As a result, investors should only put in money they can afford to lose.

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Serve Robotics, and Uber Technologies. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.