Uber Is Backing This Tiny Artificial Intelligence (AI) Stock, and It Could Soar by as Much as 200%, According to Wall Street

When it comes to the artificial intelligence (AI) revolution, most investors focus on the trillion-dollar tech companies leading the race. That's understandable, but there are opportunities at the smaller end of the market, too.

Serve Robotics (NASDAQ: SERV) is a $650 million company developing autonomous last-mile logistics services, and it has a blockbuster deal with Uber Technologies to deploy thousands of its robots into the Uber Eats food delivery network.

Uber is also one of Serve's largest shareholders. Uber acquired a company called Postmates in 2020, and in 2021, it spun its robotics division into a separate entity that became Serve Robotics while maintaining an equity stake.

The Wall Street Journal tracks a handful of analysts who cover Serve stock, and the majority of them have given it a buy rating. Their price targets suggest the stock could soar by as much as 200% over the next 12 to 18 months, so with that in mind, should investors follow Uber into this budding AI opportunity?

A delivery robot at work. Image source: Getty Images.

Serve's potential $450 billion opportunity

Serve believes existing last-mile logistics networks are inefficient because they rely on cars and human drivers to transport small food and retail orders. The company says rising innovation and falling costs in areas like robotics and AI are making autonomous solutions more viable, which could create a $450 billion opportunity by 2030.

Serve's latest Gen3 robot has achieved Level 4 autonomy, which means it can drive on sidewalks in designated areas without human intervention. It's ideal for businesses seeking a cost-effective local delivery solution, which is why 3,600 restaurants in five U.S. cities have used Serve's robots to make over 100,000 deliveries since 2022.

As Serve scales up its business, it believes its cost per delivery will fall to just $1, making it substantially cheaper than any human-driven solution available today.

Serve's deal with Uber represents a major step toward achieving that goal. The company is on track to deploy 2,000 Gen3 robots into the Uber Eats network before the end of 2025, which will be spread across major markets like Los Angeles, Miami, Atlanta, Chicago, and more. When operating at full capacity, Serve believes each robot will pay for itself in under one year, so this rollout could be very lucrative for the company.

Serve's losses are piling up

Serve generates very little revenue for a publicly-traded $670 million company. It brought in just $687,000 during the third quarter (ended Sept. 30), which wasn't anywhere near enough to fund its $30.4 million in operating costs. It spent $13.4 million on research and development alone.

As a result, the company lost $33.2 million on the basis of generally accepted accounting principles (GAAP). Year to date, it has reported a net loss of $67.1 million, up 157%.

Management expects its 2025 revenue to total just $2.5 million. However, once all 2,000 robots are operating in the Uber Eats network in 2026, it believes its annual revenue could increase tenfold to $25 million. Serve's losses are much easier to stomach with that kind of growth in the pipeline, but there is little room for error.

The company had $210 million in liquidity on hand at the end of the third quarter, and it raised a further $100 million in October. That should get the company through the next few years as long as its losses don't materially increase from here, but there is no guarantee they won't.

Wall Street is bullish on Serve, but there's reason to be cautious

The Wall Street Journal tracks seven analysts who cover Serve stock, and six of them have given it a buy rating. The remaining analyst recommends holding, which means none recommend selling.

The analysts have an average price target of $18.50, which suggests the stock could soar by 113% over the next 12 to 18 months, but the Street-high target of $26.00 implies much bigger potential upside of 200%.

With all of that said, Serve's valuation warrants a high degree of caution. Its stock is trading at a price-to-sales ratio (P/S) of 245 as I write this, which makes it almost 10 times more expensive than an already pricey Nvidia stock.

Data by YCharts.

Nvidia is one of the highest-quality AI companies in the world with hundreds of billions of dollars in annual revenue, surging profits, a rock-solid balance sheet, and a track record of success spanning decades. Therefore, I don't think Serve deserves such a premium valuation given its largely unproven business model, steep losses, and limited cash reserves.

The company's P/S ratio could come down by as much as 90% next year if the company does grow its revenue tenfold, which could make the stock look more attractive. But execution is the big unknown as any period of rapid expansion also comes with higher risk.

If the Gen3 robots don't live up to expectations next year, Serve stock could experience a sharp correction to take some of the air out of its steep valuation. That poses a serious risk to investors who buy the stock at current prices.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Serve Robotics, and Uber Technologies. The Motley Fool has a disclosure policy.