On Friday, Serve Robotics (NASDAQ: SERV) saw its stock surge higher by 187% on remarkable trading volume after NVIDIA (NASDAQ: NVDA) disclosed its stake in the company. This surge came after a recent Form 4 regulatory filing revealed NVIDIA's investment in Serve Robotics.

According to the filing, in April, NVIDIA converted a promissory note into 1.05 million shares of Serve Robotics at $2.42 per share. Additionally, NVIDIA purchased 62,500 shares at $4 each last July. This investment, valued at just over $3.7 million, was part of a 6.0% convertible debt note that NVIDIA held, converted following Serve Robotics' public debut in April.

This news led to a trading frenzy and immense volatility, with over 250 million shares traded on Friday, significantly higher than the average daily volume of roughly 700,000 shares.

Serve Robotics' Market Position

Serve Robotics designs, develops, and operates low-emission, self-driving delivery robots in the United States. These robots are tailored to navigate complex urban environments and deliver goods directly to consumers. The company aims to revolutionize the last-mile delivery market by enhancing efficiency, reducing delivery times, and lowering costs.

Serve Robotics is a small-cap company with a market capitalization of $280 million after Friday's surge, up from about $100 million valuation the prior day. The stock has a free float of just 29 million shares and 37 million outstanding shares. The size of its float, market capitalization, and average daily volume played an important role in Friday's volatility.

Strategic Partnerships and Revenue Growth for Serve Robotics

According to its May Investor Presentation, the company is backed by prominent investors such as Uber, NVIDIA, Delivery Hero, and 7-Eleven. According to the report, Uber is its largest shareholder and commercial partner, while NVIDIA is its largest strategic investor, with investments totaling almost $12 million to date.

According to the report, in Q1 2024, Serve Robotics reported revenue of just $0.95 million, including 124% sequential growth in delivery and branding revenue and $0.85 million in software service revenue.

Notably, the company said it signed contracts for 2,000 robots with Uber Eats. This deployment is expected to be completed by 2025, and the company plans to expand to new markets such as San Diego, Dallas, and Vancouver, BC, in addition to increasing coverage in Los Angeles.

While Serve Robotics has demonstrated significant growth potential, its current market valuation of $280 million might seem high given its modest revenue and early stage of operations and growth. Notably, despite Friday's whopping surge higher, the stock remains negative year-to-date, highlighting its volatility and speculative nature. While the stock remains in play and experiences notable volume surges, it will likely remain susceptible to wild price movements and volatility, making it more suitable for active traders than investors.

NVIDIA's investment is part of its broader strategy of investing in innovative startups, as seen with similar investments in companies like SoundHound AI (NASDAQ: SOUN) and Nano-X Imaging (NASDAQ: NNOX). Historically, such investments have led to initial price surges followed by corrections as market excitement wanes.

Serve Robotics' recent surge highlights its potential in the autonomous delivery market, bolstered by NVIDIA's investment. However, investors should consider the company's modest revenue, the possibility of future price corrections, and potential operational challenges. As always, thorough research and a careful risk tolerance assessment are essential before making any investment decisions, especially when investing in a small-cap stock.