With the onset of the artificial intelligence (AI) revolution, semiconductor company Nvidia (NVDA) has been the market darling. Any company that Nvidia expresses even the slightest interest in, captures everybody’s attention.
SoundHound AI (SOUN) was one of these under-the-radar penny stocks. It is a pure-play voice AI technology company that skyrocketed in March after Nvidia disclosed a $3.7 million investment in SOUN via its first-ever 13F filing. SOUN stock is up 126.9% year-to-date (YTD), outperforming the S&P 500 Index's ($SPX) roughly 15% gain.
More recently, another small robotics company that has captured Nvidia’s attention is Serve Robotics (SERV). On July 18, Nvidia disclosed a 10% ownership stake worth $3.7 million in Serve, boosting the stock to a gain of 187% last Friday. The shares are up 233% in total since the news broke, which follows shortly after SERV's uplisting to the Nasdaq on April 18.
Let’s find out what made Nvidia decide to invest in this robotics stock, and whether it's a good buy right now.
About Serve Robotics
Serve Robotics (SERV) was spun out of Postmates, a food delivery company that Uber Technologies (UBER) acquired in 2020. Valued at $348.7 million, Serve creates advanced, AI-powered, low-emission sidewalk delivery robots. The spinoff allowed Serve Robotics to concentrate solely on the development and deployment of autonomous sidewalk delivery robots.
Last-mile delivery solutions are in high demand, owing to the e-commerce boom and the need for contactless delivery options that arose during the global pandemic. The autonomous robots developed by Serve Robotics offer a one-of-a-kind solution for businesses looking to reduce delivery costs and improve efficiency.
In 2023, Serve formed a partnership with Uber to deploy up to 2,000 AI-powered sidewalk delivery robots on the Uber Eats platform in multiple U.S. markets. In April of this year, Serve expanded its partnership with long-term licensing partner Magna International to manufacture delivery robots for Uber Eats.
In May, the company reported its first quarter of 2024 results following the uplisting, which included a public equity offering. Total revenue increased 124% sequentially, reaching $0.95 million. In Q1, SERV averaged 300 daily supply hours, a 97% increase over the year-ago period, as well as a 70% increase in daily active robots.
The company has secured significant funding for now. It raised $40 million in gross proceeds from the Nasdaq listing, giving the company a solid foundation and the capital it needed to accelerate growth. It also received a $4.5 million investment from its shareholders and strategic partner, Postmates. Furthermore, at the end of the quarter, SERV held $0.43 million in cash and cash equivalents.
SOUN vs. SERV
Nvidia's interest in SoundHound AI was undoubtedly justified. SoundHound's finances are soaring as it solidifies its position in the AI customer service market across multiple industries.
The same could be true for Serve Robotics. Serve specified in its May 2024 investor presentation that Nvidia has a total investment of close to $12 million, and Nvidia has been its technical partner since 2018. In addition to Nvidia, Uber has also invested $11.5 million. Other early investors in SERV include 7-Eleven and Delivery Hero.
However, Serve Robotics is still in its early stages, which means it is more concerned with scaling operations than with generating significant profits. It could be a while before the company begins to deliver consistent profits.
Analysts covering SERV expect it to post $1.64 million in revenue in 2024, with revenue increasing a whopping 877% year-over-year to $16 million in 2025.
What is Wall Street Saying About Serve Robotics Stock?
Overall, SERV is a “moderate buy” on Wall Street. Out of the nine analysts covering the stock, five rate it a “strong buy,” one rates it a “moderate buy,” two suggest it’s a “hold,” and one recommends a “moderate sell.” The average target price of $46.25 implies a potential upside of 430%.
The Bottom Line on Nvidia's SERV Stake
While Nvidia has not disclosed the reason for its investment in Serve Robotics, a 10% stake in the company suggests confidence in SERV's long-term growth prospects. The global market for autonomous delivery robots is expected to grow at a compound annual growth rate of 26.4%, reaching $2.97 billion by 2031.
Furthermore, backed by two powerful tech companies - Uber and Nvidia - SERV is well-positioned to capitalize on this trend with its advanced technology.
However, the company relies on a single client for a chunk of its revenue. While Serve Robotics has a long way to go, I believe it could be a compelling opportunity in the rapidly growing robotics industry.
That said, investors should be aware that Serve Robotics, like many other tech startups, may experience financial volatility as it expands its operations. I would recommend keeping an eye on Serve Robotics and starting with a small stake as it strengthens its financials.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
