Should You Buy Serve Robotics Stock Before March 6?

Ride-hailing giant Uber Technologies and artificial intelligence (AI) chipmaker Nvidia don't have much in common, but until the end of last year, they were the two largest shareholders in Serve Robotics (NASDAQ: SERV). However, investors recently learned that Nvidia sold its entire position at the end of 2024, and Serve stock has plunged by more than 50% since.

Serve developed an autonomous last-mile delivery robot powered by some of Nvidia's technology, and it's working to deploy thousands of them this year under a deal with Uber's Uber Eats platform. The company is scheduled to report its latest financial results for the fourth quarter of 2024 (ended Dec. 31) on March 6, which will give investors an update on its progress.

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Could the 50% dip in Serve stock be a buying opportunity ahead of the report?

Image source: Getty Images.

The future of last-mile logistics

Serve thinks existing food delivery networks are inefficient because they rely on humans and cars, both of which are extremely expensive inputs. The company believes autonomous robots and drones are far more cost-effective given the relatively small payloads, especially because developing AI hardware and software is becoming cheaper over time.

Serve developed robots with Level 4 autonomy, meaning they can drive on sidewalks in specific areas unassisted by humans. In fact, they have already made over 50,000 deliveries for around 400 restaurants in Los Angeles since 2022 with 99.94% accuracy, making them 10 times more efficient than human delivery workers.

Serve's latest Gen3 robot is five times more powerful than its predecessor with a faster top speed, longer operating times, and wider range, making it up to 50% cheaper to operate. Gen3 is powered by Nvidia's Jetson Orin platform, which includes the hardware and software required to run computer vision and advanced robotics.

The typical delivery fee on Uber Eats (using human drivers) can range from zero to $8 -- all which is added on the cost of an order, plus the service fee and tip. But Serve thinks it can get its cost per delivery down to $1 consistently. That would be a huge win for the customer, which will probably boost order volumes and, therefore, benefit all parties.

Serve thinks the market for autonomous food delivery could reach $450 billion by 2030 (citing a study by Ark Investment Management), so there is an enormous opportunity ahead. The company is working to deploy 2,000 robots this year under a deal with Uber Eats, which will expand its presence in California and open up new geographic markets. On Feb. 19, Serve launched its service in Miami, where it will deliver orders for Shake Shack and Mister O1 Extraordinary Pizza through Uber Eats.

Serve's rapid revenue growth is overshadowed by its steep losses

According to Wall Street's consensus forecast (provided by Yahoo!), Serve's upcoming financial report should show around $1.9 million in total revenue for the whole of 2024. That would be a 820% increase compared to 2023.

The Street then expects the company to generate $13.3 million in revenue during 2025, representing further 598% growth. This would be a huge leap in dollar terms, and it will depend on the successful deployment of the 2,000 robots under the Uber Eats deal. However, if Serve can pull it off, 2025 will certainly be a validating year for its business model.

As is the case with most start-ups, Serve is burning through significant amounts of money. It lost $26.1 million during the first three quarters of 2024, which followed a $24.8 million loss during 2023. Since the company only had $50.9 million in cash on hand at the end of the third quarter, it can't afford to keep losing money at the current pace.

Serve managed to raise a further $80 million in January by issuing new stock to investors. This strategy is extremely dilutive for existing shareholders, so it isn't something the company can do over and over again in perpetuity -- it will eventually have to address its steep losses.

Serve stock is obscenely expensive, even after the recent dip

Serve Robotics has a market capitalization of $581 million as of this writing. Based on the company's trailing-12-month revenue, that places its stock at a price-to-sales (P/S) ratio of 213.6. For some perspective, it makes Serve an eye-popping seven times more expensive than Nvidia, which trades at a P/S ratio of 28.5:

SERV PS Ratio data by YCharts

Even when measured against Wall Street's forecast 2025 revenue of $13.3 million, Serve's forward P/S ratio is 45.1, which still makes it significantly more expensive than Nvidia. Keep in mind, Nvidia is expected to generate over $195 billion in revenue in its current fiscal year, not to mention tens of billions of dollars in profit. In my opinion, it makes no sense for Serve's valuation to trade at a premium to one of the world's highest-quality companies.

Serve could become a formidable player in the robotics space one day if it captures enough of its estimated $450 billion addressable market, but that's no reason to pay such a hefty price for its stock today. In fact, its recent 50% dip could get worse until its valuation returns to a more reasonable level, and I don't think anything in the company's upcoming report on March 6 will change that.

As a result, investors might want to steer clear for now.

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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 has a disclosure policy.