In relation to artificial intelligence (AI), there’s Nvidia (NASDAQ: NVDA), and there’s everyone else. The chipmaker has become the poster child for AI as its graphics processing units (GPUs) have become the gold standard for AI systems. So, when Nvidia makes an investment in anything AI-related, investors sit up and take notice.
That’s what happened earlier this yr with SoundHound AI. In February, investors learned that Nvidia had taken a small position throughout the voice and audio recognition specialist, which sent its shares skyward, gaining as much as 93% throughout the week following the revelation.
Now, history is repeating itself. Last month, Nvidia revealed it had acquired a somewhat sizable stake in Serve Robotics (NASDAQ: SERV), which sent the stock into the stratosphere. Let’s take a take a have a look at what enticed Nvidia to take a position in the company and if it is wise for investors.
Serve’d up hot
Serve Robotics describes itself as a “leading autonomous sidewalk delivery company.” The company went public without much fanfare on April 18, offering up 10 million shares of common stock at $4 per share. The stock initially slipped under the radar and interest was weak, since the stock ended its first day of trading down 22%.
The company is specializing in what management believes is a $450 billion market using robotics and drones for last-mile delivery. As an illustration, the company estimates that the median distance of food deliveries throughout the U.S. is 2.5 miles. It further suggests that the common cost to cover that distance using its autonomous robots will be about $1, inexpensive than existing alternatives — while cutting down on the greenhouse gas emissions attributable to automobiles.
Serve first launched its fleet of sidewalk delivery robots in Los Angeles in 2020. By the tip of the yr, these robots had completed greater than 10,000 deliveries for food delivery service Postmates — now owned by Uber Technologies.
Uber has a industrial partnership agreement with Serve to deploy as many as 2,000 of its delivery robots by 2025, up from Serve’s current fleet of roughly 100. The expansion will see not lower than 250 robots in Los Angeles by the first quarter of 2025, expanding into recent geographic markets starting in Q2.
Not only Nvidia
In a regulatory filing that dropped on July 18, Nvidia revealed that it owned greater than 3.7 million shares of Serve Robotics stock, amounting to a ten% position in the company, with that stake that was valued at roughly $10 million (on the time). Word of Nvidia’s investment stoked interest throughout the tiny company, driving its shares up 335% (as of market close on Thursday). Nevertheless, several developments in recent weeks have compounded investor excitement, and it just isn’t nearly Nvidia.
Just this week, Serve announced a partnership with Shake Shack to deliver its food orders through Uber Eats in Los Angeles. Scoring a well-known fast-casual chain like Shake Shack was a coup for Serve, elevating its profile throughout the food delivery space.
This announcement came on the heels of Serve Robotics’ second-quarter financial results, which were higher than expected. The company generated revenue of $470,000, which included $300,000 from auto parts supplier Magna to license its robotic technology. Delivery revenue of $170,000 surged 178% yr over yr and 80% sequentially. On the equivalent time, gross margin for the segment improved 85% yr over yr and 64% quarter over quarter.
Helping drive its financial results was a sturdy operating performance. Serve averaged 385 every day supply hours in the midst of the quarter, up 106% yr over yr and 28% sequentially. The company also increased its every day energetic robots by 85% yr over yr and 23% sequentially.
Should investors follow Nvidia?
While Nvidia’s stake in Serve Robotics is notable, it should be put in perspective. On the tip of the second quarter, Serve represented lower than 2% of Nvidia’s AI-focused portfolio. For context, chipmaker Arm Holdings made up about 82%.
With a market cap of roughly $422 million, Serve Robotics barely rises to the extent of small-cap and has yet to generate a profit. As such, the stock will likely be extremely volatile and far more dangerous than an investment in Nvidia. There’s also the matter of valuation, as Serve’s stock is currently selling for 259 times forward sales. For context, Nvidia is selling for 25 times forward sales, a bargain considering its triple-digit growth.
Investors who really need a bit of Serve Robotics shouldn’t buy any greater than a tiny stake befitting such a dangerous bet. Higher yet, they may simply buy Nvidia, thereby owning Serve by proxy.
Must you invest $1,000 in Serve Robotics immediately?
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Danny Vena has positions in Nvidia. The Motley Idiot has positions in and recommends Nvidia and Uber Technologies. The Motley Idiot recommends Magna International. The Motley Idiot has a disclosure policy.
Meet the Newest Artificial Intelligence (AI) Stock in Nvidia’s Portfolio (Hint: It’s Not SoundHound AI) was originally published by The Motley Idiot