Could Serve Robotics Become the Next Symbotic?

Symbotic (NASDAQ: SYM) , a producer of artificial intelligence-powered warehouse automation robots, went public by merging with a special purpose acquisition company (SPAC) two years ago. Its stock has gone through some wild swings, but it has still nearly quadrupled from its opening price of $10.54 to about $40 as of this writing.

Symbotic gained a lot of attention for three reasons: it was growing rapidly, its largest backer and customer was Walmart , and it claimed that a $50 million investment in just one of its modules (which include its warehouse robots and automation software) could generate $250 million in lifetime savings over 25 years.

Image source: Serve Robotics.

Its revenue already increased at a compound annual growth rate (CAGR) of 116% from fiscal 2021 to fiscal 2023 (which ended last September), and analysts expect it to continue rising at a CAGR of 44% from fiscal 2023 to 2026. But with a market capitalization of $23 billion, Symbotic might have less upside potential than other, smaller robotics companies.

So could Serve Robotics (NASDAQ: SERV) , a much smaller robotics specialist with a market cap of $350 million, have a shot at replicating Symbotic's impressive gains over the next few years?

What does Serve Robotics do?

Serve Robotics produces AI-powered autonomous sidewalk delivery robots. It was originally founded in 2017 as a unit of Postmates, the food delivery company that was acquired by Uber in 2020. Uber spun out Serve Robotics as an independent company in 2021, but it continues to use its robots to fulfill Uber Eats deliveries in select cities.

Serve Robotics executed a reverse merger with the blank-check company Patricia Acquisition Corp. in 2023 -- which paved the way toward its public offering at $4 on April 18, 2024 -- but it didn't initially attract much attention from retail investors. It opened at just $4.75 per share on the first day, closed at $3.11, and dropped below $3 by the end of the month.

Why didn't Serve Robotics' stock take off initially?

The bulls weren't impressed because it was still a tiny company. It only generated $107,819 and $207,545 in revenue in 2022 and 2023, respectively. Analysts expect it to generate $1.6 million in revenue this year as it scales up its business.

That's a bright outlook, but a lot of that growth is baked into its stock, which is priced at nearly 220 times this year's sales. It also racked up net losses of $21.9 million in 2022 and $24.8 million in 2023, and analysts expect a net loss of $28.6 million in 2024.

Serve operates a fleet of about 100 robots, but only 39 of its robots were active on a daily basis in the first quarter of 2024. It mainly serves Uber Eats restaurants in the L.A. area, and it doesn't plan to add any new robots to its fleet this year. But in 2025, it aims to start deploying up to 2,000 robots across the U.S. for Uber Eats. Based on those expectations, analysts believe it can generate $16 million in revenue in 2025 as it narrows its net loss to $20.2 million.

If Serve Robotics can achieve that ambitious goal, then its stock looks more reasonably valued (but not cheap). Analysts also believe it can generate $60 million in revenue in 2026 as it finally turns profitable, but that's assuming it can scale up its production without running out of cash. That could be incredibly challenging for a company that only had $34.2 million in cash and equivalents at the end of April.

But Nvidia believes in Serve Robotics

Serve Robotics is still a speculative investment, but Nvidia seems bullish on its growth potential. In a recent filing with the Securities and Exchange Commission on July 18, the AI chipmaker revealed that it had accumulated a 10% stake in the company. Serve's stock has soared nearly 260% since that announcement on investor optimism.

But this isn't really a big investment for Nvidia, which also made similar investments in other AI-related companies over the past year. Furthermore, the idea of using autonomous delivery robots for last-mile deliveries has been untested on a broader nationwide scale -- and unpredictable challenges like traffic accidents, theft, and vandalism could easily kill its experimental market. Symbotic doesn't have to worry too much about those problems in its warehouses and fulfillment centers.

Will Serve Robotics become the next Symbotic?

Serve and Symbotic are both trying to replace human workers with automated robots, but I suspect the former will face more growing pains than the latter. While I think Serve is an interesting investment for speculative investors, it shouldn't be seriously compared to Symbotic until it starts to ramp up its production at a sustainable rate.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Uber Technologies, and Walmart. The Motley Fool has a disclosure policy .