We came across a bearish thesis on Serve Robotics Inc. (SERV) on wallstreetbets Subreddit Page by SunderRei. In this article, we will summarize the bears’ thesis on SERV. Serve Robotics Inc. (SERV)’s share was trading at $18.88 as of Jan 16th.
Logistics robots filling packages in a warehouse, preparing for delivery.
Serve Robotics (SERV) has captured significant attention with its autonomous delivery robots, yet the company’s financials raise major red flags. Despite a market valuation exceeding $1 billion, SERV’s history of unprofitability, negative gross margins, and high operational costs suggests an unsustainable business model. Each robot currently costs more to produce and operate than the revenue it generates, undermining the company’s long-term viability. Alarmingly, SERV plans to mass-produce 2,000 third-generation robots in 2025, a 20-fold increase from its existing fleet of 100. With production costs per robot exceeding $32,000, this initiative will exert enormous financial pressure on a company already struggling to demonstrate profitability.
The revenue potential per robot is concerningly low. Based on SEC filings, second-generation robots generate an average of $7,612 annually in delivery revenue, which pales in comparison to their production cost of $63,654. Even with the reduced production costs of third-generation robots and projected improvements in efficiency, it would still take six years for a robot to recoup its manufacturing cost—well beyond the likely operational lifespan. Operational expenses, including remote control staffing (required 20% of the time) and maintenance, further erode profitability, with annual costs per robot conservatively estimated at over $18,000.
Advertisement revenue, a secondary income stream, offers limited relief. Even with an optimistic projection of $800 per robot per month, total revenues remain insufficient to offset the heavy expenses. SERV’s reliance on NVIDIA as a strategic investor has driven speculative interest, particularly following NVIDIA’s $12 million investment and 10% ownership stake. However, NVIDIA’s involvement appears more focused on showcasing its AI hardware capabilities than on SERV’s financial success. NVIDIA’s endorsement has inflated SERV’s valuation, which skyrocketed 2,000% in mid-2024, but it fails to address the fundamental flaws in SERV’s business model.
Looking ahead, SERV’s planned expansion is likely to exacerbate financial losses, with ballooning costs far outpacing revenues. Recent insider sales totaling $3 million further signal declining confidence among management. While SERV remains a speculative play for optimists betting on autonomous delivery technology, its current valuation is disconnected from its financial reality. For investors, SERV presents an overvalued stock with significant downside risk, making it a compelling short opportunity as its financial struggles become increasingly apparent in future reports.
Serve Robotics Inc. (SERV) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held SERV at the end of the third quarter which was 3 in the previous quarter. While we acknowledge the risk and potential of SERV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SERV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.