When it comes to artificial intelligence (AI), there are NVIDIA (NASDAQ: NVDA)and then there’s everyone else. The chipmaker has become the poster child for AI as its graphics processing units (GPUs) have become the gold standard for AI systems. So when Nvidia invests in anything related to AI, investors sit up and take notice.

This happened at the beginning of the year with SoundHound AIIn February, investors learned that Nvidia had acquired a small stake in the speech and audio recognition specialist, driving up the share price and causing it to rise as much as 93% in the week following the revelation.

Now history is repeating itself. Last month Nvidia announced that it had acquired a fairly large share of Serve Robotics (NASDAQ:SERV)which catapulted the stock into the stratosphere. Let’s look at what prompted Nvidia to invest in the company and whether it makes sense for investors.

Served hot

Serve Robotics describes itself as the “leading autonomous sidewalk delivery company.” The company quietly went public on April 18, offering 10 million shares of common stock at $4 per share. The stock initially went unnoticed and interest was low, with the stock ending its first day of trading down 22%.

The company is focusing on a market that management says is worth $450 billion and uses robots and drones for last-mile delivery. For example, the company estimates that the average distance of grocery deliveries in the U.S. is 2.5 miles. It also believes that the average cost of traveling that distance with its autonomous robots would be about a dollar, which would be much cheaper than existing alternatives – while reducing greenhouse gas emissions from cars.

Serve launched its fleet of delivery robots on sidewalks in Los Angeles in 2020. By the end of the year, these robots had made more than 10,000 deliveries for food delivery service Postmates – which is now owned by Uber Technologies.

Uber has entered into a commercial partnership with Serve to deploy up to 2,000 of its delivery robots by 2025, adding about 100 to Serve’s current fleet. The expansion will see at least 250 robots deployed in Los Angeles by the first quarter of 2025, and expansion into new geographic markets starting in the second quarter.

Not just Nvidia

In a regulatory filing on July 18, Nvidia disclosed that it owns more than 3.7 million shares of Serve Robotics, representing a 10% stake in the company. That stake was worth about $10 million (at the time). News of Nvidia’s investment fueled interest in the small company, sending its shares up 335% as of Thursday’s close. But several developments in recent weeks have added to investor excitement, and it’s not just about Nvidia.

The story continues

Just this week, Serve announced a partnership with ShakeShack to deliver its food orders through Uber Eats in Los Angeles. Winning a well-known fast-casual chain like Shake Shack was a stroke of luck for Serve and raised its profile in the food delivery space.

This announcement came on the heels of Serve Robotics’ better-than-expected second-quarter financial results, with the company generating $470,000 in revenue, including $300,000 from an auto parts supplier. Magna to license its robotics technology. Delivery revenue of $170,000 increased 178% year-over-year and 80% quarter-over-quarter. At the same time, the segment’s gross margin improved 85% year-over-year and 64% quarter-over-quarter.

Strong operational performance also contributed to the financial results. Serve delivered an average of 385 hours per day during the quarter, up 106% year-over-year and 28% quarter-over-quarter. The company also increased the number of its daily active robots by 85% year-over-year and 23% quarter-over-quarter.

Should investors follow Nvidia?

While Nvidia’s stake in Serve Robotics is notable, it needs to be put into perspective. At the end of the second quarter, Serve accounted for less than 2% of Nvidia’s AI-focused portfolio. By comparison, the chipmaker Arm Holdings accounted for about 82%.

With a market cap of around $422 million, Serve Robotics is barely at the level of a small-cap stock and has yet to generate a profit. As such, the stock will be extremely volatile and far riskier than investing in Nvidia. Then there’s the question of valuation, with Serve’s stock currently trading at 259 times forward revenue. For comparison, Nvidia trades at 25 times forward revenue, a bargain considering its triple-digit growth.

Investors who Really Those who want a piece of Serve Robotics should not buy more than the tiny stake appropriate for such a risky bet. Better yet, they can simply buy Nvidia and thereby own Serve by proxy.

Should you invest $1,000 in Serve Robotics now?

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Danny Vena holds positions in Nvidia. The Motley Fool holds positions in and recommends Nvidia and Uber Technologies. The Motley Fool recommends Magna International. The Motley Fool has a disclosure policy.

Meet the Newest Artificial Intelligence (AI) Stock in Nvidia’s Portfolio (Hint: It’s Not SoundHound AI) was originally published by The Motley Fool