One of the top-trending equities on Tuesday, food-delivery robotics specialist Serve Robotics (NASDAQ:SERV) saw its value soar. Positive sentiment has returned to the market in response to Monday’s severe selloff. More importantly, tech juggernaut Nvidia (NASDAQ:NVDA) backs the automation firm. Combined with the possibility of a short squeeze, retail investors have been tuned into SERV stock.
Sentiment for Serve initially spiked in the second half of July. As MarketBeat reported, SERV stock almost tripled in value following Nvidia’s disclosure that it had a stake in SERV stock. Per a recent regulatory filing, in April, Nvidia “converted a promissory note into 1.05 million shares of Serve Robotics at $2.42 per share.” In addition, the semiconductor giant purchased 62,500 shares of Serve at $4 apiece on July 31, 2023.
Not surprisingly, the disclosure sparked a feeding frenzy over SERV stock. Prior to the euphoric activity, shares exchanged hands at well under $3. By the peak represented by the July 29 session, SERV had closed the day at $19.39. Soon after, though, tech sector concerns roiled the entity.
With the CBOE Volatility Index or VIX — commonly known as the fear index — screaming higher, concerns rang out that the economy could fall into recession. However, a positive response by the global markets today has reinvigorated sentiment, contributing to the current rise in SERV stock.
A Possible Short Squeeze Could Send SERV Stock Higher
To be sure, SERV stock is a speculative entity. At the moment, it carries a market capitalization of only $692 million. And while its performance in the trailing month — up around 600% — is extraordinarily impressive, since its first public close, SERV is down around 34%.
Nevertheless, SERV stock benefits from important backers. In addition to Nvidia, ride-sharing behemoth Uber (NYSE:UBER) is a prominent investor. In fact, Uber is Serve’s largest shareholder and commercial partner, while Nvidia represents its largest strategic investor, per MarketBeat. The food-delivery robotics specialist has also partnered with Pizza Hut Canada, which is owned by Yum! Brands (NYSE:YUM).
Despite the many promising elements, not everyone is enamored with Serve. Notably, Fintel notes that the company’s short interest is somewhat elevated at 9.4% of its float. While not the most glaring statistic, Fintel also points out that its proprietary Short Squeeze Score rates SERV stock as 89.6 out of 100. This indicates a higher-than-average probability that a short squeeze may materialize.
This dynamic could be driven by a combination of a small float (17.55 million shares) and a potential lack of shares available to be shorted. Fintel reports that at a leading prime brokerage, there are only 95,000 shares available for short-trading activities. While this data point does not include all brokerages, it provides a picture of the possible challenges facing short traders.
Subsequently, an unexpected rise in SERV stock could panic the bears out of their positions, thus leading to a short squeeze. Enticingly, options flow data shows that net trade sentiment among derivative market traders stands at $827,000 in favor of the bulls.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor held a LONG position in NVDA.
