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When it comes to artificial intelligence (AI), there is Nvidia (NASDAQ: NVDA)And there's everyone. The chipmaker has become the poster child for AI as Graphics Processing Units (GPUs) It has become The gold standard for AI systemsSo, when Nvidia makes an investment in anything related to AI, investors take notice.
This is what happened earlier this year with Sound Hound AAIn February, investors learned that Nvidia had taken a small stake in the voice and speech recognition company, sending its shares skyrocketing, rising 93% in the week following the disclosure.
Now history is repeating itself. Last month, Nvidia revealed that it had acquired a fairly large stake in Robot Service (NASDAQ: SERV)sending the stock skyrocketing. Let's take a look at what prompted Nvidia to invest in the company and whether it makes sense for investors.
Hot served
Serve Robotics describes itself as “a pioneer in curbside delivery.” The company went public with little fanfare on April 18, offering 10 million shares of common stock at $4 each. Initially, the stock went largely unnoticed and interest was low, with the stock ending its first day of trading down 22%.
The company is focusing on what management believes is a $450 billion market that uses robots and drones to deliver orders the last mile. For example, the company estimates that the average distance for food delivery in the United States is 2.5 miles. It also suggests that the average cost to cover that distance with autonomous robots would be about $1, significantly cheaper than current alternatives — while reducing greenhouse gas emissions from cars.
Serve first launched its fleet of delivery robots on sidewalks in Los Angeles in 2020. By the end of the year, those robots had completed more than 10,000 deliveries for food delivery service Postmates — now owned by Uber Technologies.
Uber has entered into a commercial partnership with Serv to deploy up to 2,000 of its delivery robots by 2025, up from Serv’s current fleet of about 100. The expansion will see at least 250 robots in Los Angeles by the first quarter of 2025, with expansion into new geographic markets beginning in the second quarter.
Not just Nvidia
In a regulatory filing on July 18, Nvidia disclosed that it owned more than 3.7 million shares of Serve Robotics, equivalent to a 10% stake in the company, worth about $10 million (at the time). News of Nvidia’s investment sparked interest in the small company, sending its shares soaring 335% (as of Thursday’s market close). However, several developments in recent weeks have fueled investor enthusiasm, and it’s not just Nvidia.
Just this week, Serve announced a partnership with Shake Shack To deliver food orders through Uber Eats in Los Angeles. The signing with a popular fast-casual restaurant chain like Shake Shack was a huge blow for Serve, raising its profile in the food delivery space.
The announcement comes on the heels of Serve Robotics’ better-than-expected second-quarter financial results. The company reported revenue of $470,000, including $300,000 from its auto parts supplier. Magna To license its robotics technology. Delivery revenue of $170,000 increased 178% year-over-year and 80% quarter-over-quarter. Meanwhile, the segment’s gross margin improved 85% year-over-year and 64% quarter-over-quarter.
Strong operational performance helped drive its financial results. Serve’s average daily sourcing hours were 385 during the quarter, up 106% year-over-year and 28% quarter-over-quarter. The company also increased the number of daily active robots by 85% year-over-year and 23% quarter-over-quarter.
Should investors follow Nvidia?
While Nvidia’s stake in Serve Robotics is notable, it should be put into perspective. At the end of the second quarter, Serve represented less than 2% of Nvidia’s AI-focused portfolio. In that context, the chipmaker Arm Holding It constitutes about 82%.
With a market cap of around $422 million, Serve Robotics is barely a small cap and has yet to turn a profit. As such, the stock will be highly volatile and much riskier than investing in Nvidia. There’s also the issue of valuation, with Serve currently selling for 259 times future sales. For context, Nvidia is selling for 25 times future sales, a good deal considering its triple-digit growth.
Investors who truly Those who want to get a stake in Serve Robotics shouldn’t buy more than a small stake befitting such a risky bet. Better yet, they could simply buy Nvidia, thus owning Serve by proxy.
Should You Invest $1,000 In Serve Robotics Now?
Before you buy shares in Serve Robotics, keep the following in mind:
the Motley Fool Stock Advisor The team of analysts has just identified what they believe to be Top 10 Stocks There are 10 stocks available for investors to buy right now… and Serve Robotics isn't one of them. The 10 stocks that do make it could deliver massive returns in the years to come.
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Danny in us The Motley Fool has positions in and recommends Nvidia and Uber Technologies. The Motley Fool recommends Magna International. The Motley Fool has positions in and recommends Nvidia and Uber Technologies. Disclosure Policy.
Meet the Latest AI Stock in Nvidia's Portfolio (Hint: It's Not SoundHound AI) Originally posted by The Motley Fool
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