Serve Robotics Adds 1,500 Merchants: Will the Margins Follow?

Serve Robotics Inc. SERV is benefiting from its focus on innovating its fleet of offerings, as well as expanding into new and existing geographies. These tailwinds are in turn benefiting its merchant volume, which as of March 31, 2025, stands at more than 1,500 restaurants, indicating about 50% sequential growth and 5x year-over-year growth.

During the first quarter of 2025, it added 250 new third-generation robots (expects to deploy 2,000 robots by 2025-end), launching them across the fleet in Los Angeles, Miami and Dallas. Attributable to the new additions, the company witnessed more than 75% growth in its delivery volume between the first and the last week of the first quarter of 2025, expecting approximately 60-75% sequential delivery volume growth in the second quarter. Regarding geography expansion, SERV expanded into two new markets, Miami and Dallas, alongside enlisting key partners like Shake Shack and Mister O1 at each new market launch. It also expanded its market presence in Los Angeles with its robots in Glendale and Long Beach in January 2025.

As Serve Robotics is currently undergoing several investments, its margins remain under pressure in the near term because of scale-up costs and expenses related to new market launches. The active investments are currently toning down the cash flow and margin growth of the company, but this trend is expected to simmer down as the third-generation fleet is fully deployed, with merchant volume growth fueling revenue visibility in the long term. This scenario will set the stage for scaling margins and positioning SERV for incremental profitability prospects.

During the first quarter, SERV witnessed a 40% sequential improvement in the gross margin. It expects that once the utilization improves and operating density increases, there will be meaningful improvements in the gross margin in the upcoming period.

SERV Stock’s Price Performance vs. Other Market Players

Shares of this California-based company have surged 116.6% in the past three months, significantly outperforming the Zacks Computers - IT Services industry, the broader Zacks Computer and Technology sector and the S&P 500 index, as evidenced by the chart below.

Market players like C3.ai AI and Cognex Corporation CGNX offer substantial competition to Serve Robotics in the robotics and automation sector. However, they seem to be comparatively falling behind SERV in capitalizing on the market opportunities. In the past three months, shares of C3.ai and Cognex Corporation have trended upward 40.3% and 40.2%, respectively.

SERV’s Valuation Trend

SERV stock is currently trading at a premium compared with the industry peers, with a forward 12-month price-to-sales (P/S) ratio of 27.11, as evidenced by the chart below. The overvaluation of the stock compared with its industry peers indicates its strong potential in the market, given the favorable trends backing it up.

Notably, C3.ai and Cognex Corporation are currently trading at a forward 12-month P/S ratio of 7.48 and 5.8, respectively.

EPS Trend of Serve Robotics

Serve Robotics’ bottom-line estimates for 2025 and 2026 indicate a loss per share of 93 cents and 86 cents, respectively, which have widened over the past 60 days. The revised estimated figures for 2025 imply a year-over-year decline of 38.8% while the same for 2026 indicates year-over-year growth of 7.5%.

With the ongoing investments, the near-term bottom line is expected to be pressured, but upon reaching the full potential of the current investments, SERV is expected to witness favorable year-over-year comparisons from 2026 and beyond.

SERV stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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