service robotics (service -11.53%) is a developer of autonomous last-mile logistics solutions. The company has a major contract with Uber Technology. (Uber -0.74%) Uber Eats’ food delivery platform plans to deploy thousands of self-driving robots to U.S. cities in 2025.
These robots are built using Nvidia hardware and software components. (NVDA -2.33%)is the world’s leading supplier of chips for artificial intelligence (AI) development.
But Uber and Nvidia didn’t just sign a deal with Serve. They are also the company’s largest shareholder, which means they have a direct stake in the company’s long-term success. With a market capitalization of just $700 million as of this writing, Serve could have incredible upside potential if it follows its strategy. If you’re thinking of following Nvidia or Uber into the stock market, here’s what you need to know.
Image source: Getty Images.
Potential $450 billion opportunity
Why would a consumer use a two-ton car to deliver a two-pound burrito? That’s a thoughtful question Saab posed to investors in a recent presentation. The company believes robots and drones are a better option and are rapidly becoming more economical as the cost of developing technologies such as artificial intelligence (AI) falls.
Serve estimates that its robots could eventually operate at a cost of just $1 per large-scale delivery. These vehicles already have Level 4 autonomy, allowing them to safely navigate sidewalks in designated areas 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, these deliveries are completed with 99.94% accuracy and are 10 times more reliable than human drivers.
Serve’s latest Gen3 robots are powered by Nvidia’s Jetson Orin platform, which includes all the hardware and software needed to perform advanced robotics and computer vision. Gen3 is 5x more powerful than the previous generation and reduces operating costs by 50%. In other words, it has a faster top speed, wider range, and longer operating time, which greatly increases efficiency.
Under the agreement with Uber Eats, Saab plans to deploy 2,000 robots by the end of 2025. This includes expansion to Dallas and Fort Worth, Texas, as well as other cities in California. If the program is successful, Uber could save significantly by shifting more deliveries to autonomous robots rather than human drivers. But that’s just the beginning. Saab believes autonomous last-mile logistics could become a $450 billion opportunity by 2030.
Serve is growing fast but walking a tightrope financially
Serve generated revenue of $221,555 in the third quarter of 2024 (or less than a quarter of $1 million). This represented 254% year-over-year growth, but was down by more than half from the second quarter. Three months prior, the company had revenue of $468,375.
Here’s why: Saab has selected Magna International as its manufacturing partner for 2,000 robots to be manufactured this year. When the partnership was signed last year, it included a license agreement in which Magna would pay Serve a $1.2 million fee to use its software in other areas of the robotics industry (as long as it is not used in competition with Serve). It was.
This fee was fully realized in the second quarter, leaving only Saab’s distribution revenue in the third quarter, which explains the large sequential decline.
Serve is currently walking a tightrope financially, burning through cash at an alarming rate. It spent $25.3 million in the first three quarters of 2024, most of which went to research and development. The company generated negligible revenue, resulting in a net loss of $26.1 million for the period.
Serve has just $50.9 million in cash on hand, but unless it cuts expenses (or finds more revenue) it will run out of cash within the next 18 months. However, the company established an open market share plan in November, allowing it to raise an additional $100 million by selling new shares to investors. While this would provide additional financing avenues, it would also dilute existing shareholders.
Over 20% of Serve’s outstanding shares are held by Nvidia and Uber.
Saab Robotics became an independent entity in 2021 after Uber acquired parent company Postmates. However, as part of the spinoff, Uber retained a stake in Saab and currently holds about 12% of the company’s outstanding shares.
Meanwhile, Nvidia has been investing in Saab since 2022 and currently holds 8.4% of the outstanding shares.
But before investors rush to join Uber and Nvidia as shareholders in Saab, they should carefully consider its valuation. The company’s stock trades at an impressive price-to-sales (P/S) ratio of 336, based on the company’s trailing 12-month revenue and market capitalization of approximately $700 million. This is a staggering 11 times more than Nvidia’s P. /S ratio.
SERV PS Ratio Data by YCharts
Nvidia has a decades-long track record of success, with a solid balance sheet and annual revenues of more than $100 billion. Needless to say, it’s a very profitable company. There is no rational reason for Serve stock to trade at such a premium to Nvidia stock.
That said, Wall Street consensus forecasts (provided by Yahoo) suggest that Saab’s annual revenue, assuming it successfully deploys 2,000 robots and ramps up deliveries under its deal with Uber, is could increase by 598% to $13.3 million by 2025. Based on this potential earnings, Saab stock has a forward P/S ratio of 54.
Although this is a more reasonable valuation, it is still incredibly expensive, so there is a real risk that the stock will undergo a significant correction at some point this year. As a result, investors should only commit funds they can afford to lose.
