Serve Robotics SERV shares have plunged 52.9% in the past three months, underperforming the Zacks Computer & Technology sector, the Zacks IT Services industry, the Technology Select Sector SPDR Fund XLK and the S&P 500 index’s decline of  8.4%, 13.3%, 8.1% and 3.8%, respectively.

The massive underperformance of this AI-powered last-mile robot delivery service provider in such a short period raises the question: Whether investors should take the risk of staying invested in this early-stage company or exit SERV stock.

SERV Three-Month Price Performance Chart

Image Source: Zacks Investment Research

Reason Behind Serve Robotics’ Underperformance

The new tariffs introduced by the Trump administration have raised concerns among investors about Serve Robotics' ability to deploy 2,000 robots by the end of 2025. The recent tariff hikes could disrupt SERV’s supply chain and increase costs, potentially slowing its expansion plans.

Additionally, SERV’s primary customers — restaurants — are already facing rising costs and weaker consumer spending, further constraining the adoption of SERV’s robot fleet. SERV’s recent financial performance also added to investors’ concern.

SERV reported a loss of 36 cents per share in the fourth quarter of 2024, wider than the Zacks Consensus Estimate of a loss of 19 cents. Furthermore, SERV’s bottom-line estimates for 2025 have been revised downward by 17 cents to a loss of 83 cents per share in the past 30 days, reflecting near-term pessimism for the stock among analysts.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Serve Robotics Faces Customer Concentration Risk

As of Dec. 31, 2024, SERV operated a fleet of 100 robots, with Magna and Uber contributing 91% of total revenues. High dependence on just two customers leaves SERV vulnerable, as losing even one could cause a sharp decline in sales and profitability.

Additionally, this customer concentration weakens SERV’s bargaining power, leading to lower profit margins — an issue already evident in its financials, as the company has never turned a profit since its establishment in 2021.

In an effort to break free from this situation, SERV is heavily investing in research and development, fleet expansion for improved unit economics, and operational scaling. However, these efforts further strain margins, keeping the company trapped in a cycle of high costs and continued losses.

SERV Faces Competitive Pressure From Industry Leaders

While the autonomous last-mile delivery market is relatively new, it has already experienced the entry of large players, including Amazon AMZN Scout, Alphabet’s GOOGL Google Wing and a few smaller players like Nuro, Starship Technologies, Kiwibot and Coco, making this space highly fragmented.

As these players compete to gain a larger market share, larger companies like Amazon and Alphabet will particularly benefit from the large capital they have. Amazon and Alphabet’s deeper financial resources ensure longer research and development cycles, whereas smaller companies like Serve Robotics will face constant uncertainty.

SERV’s larger competitor, Amazon, already has an extensive logistics network, and Google Wing benefits from Alphabet’s AI and mapping technologies, where SERV needs to improve its expertise. Larger competitors can also effectively navigate the regulatory challenges that are likely to arise as a growing number of robots access public space.

SERV’s Valuation Looks Lofty

SERV stock is trading at a premium currently, as suggested by the Value Score of F. Despite its recent plunge in stock price, the company still trades at a high forward 12-month price-to-earnings (P/S) ratio compared to the industry.

Synopsys Forward 12-Month P/S Ratio

Image Source: Zacks Investment Research

Key Technical Indicator Signals Bearish Trend for SERV

Serve Robotics’ technical indicators suggest that further downside could be ahead. The stock has been trading below the 50-day and 200-day moving averages, the key technical levels often used by traders to gauge short-term momentum. The combination of a high valuation and negative technical indicators suggests that Serve Robotics may face more volatility in the near term.

50-Day and 200-Day Moving Averages Signal Bearish Trend

Image Source: Zacks Investment Research

Conclusion: Sell SERV Stock Now

Serve Robotics is grappling with macroeconomic headwinds and competitive pressure from large industry players, limiting its growth. The company also faces customer concentration risk, making its business model relatively unstable.

The recent tariff hikes have also weighed upon its primary customer segment, restaurants, further raising doubts. Furthermore, SERV’s weaker-than-expected fourth-quarter results have not alleviated investors’ concerns.

Considering all these factors, we suggest that investors should stay away from this Zacks Rank #4 (Sell) stock at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Amazon.com, Inc. (AMZN) : Free Stock Analysis Report

Technology Select Sector SPDR ETF (XLK): ETF Research Reports

Alphabet Inc. (GOOGL) : Free Stock Analysis Report

Serve Robotics Inc. (SERV) : Free Stock Analysis Report

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

Zacks Investment Research