Those gambling on cryptocurrencies recently learned a harsh lesson about the digital "assets." Between mid-December and the beginning of February, the vast majority of cryptocurrencies, led by bitcoin, shed half or more of their value. Heed this warning from Vitalik Buterin, the inventor of Ethereum: "Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time," he posted on Twitter.
With that in mind, we asked three Motley Fool investors to choose companies that they believed provided a more traditional alternative to the cryptocurrency craze. They offered convincing arguments for PayPal Holdings, Inc. (PYPL 3.54%), International Business Machines Corporation (IBM 1.25%), and NVIDIA Corporation (NVDA -0.01%).
A digital payment play of a different sort
Chris Neiger (PayPal): Cryptocurrencies may be alluring to investors who are looking for the next big thing in digital payments, but they're not your only option in this segment. PayPal has been a longtime player in the digital payment market and its recent moves in peer-to-peer payments through its Venmo app are making it a clear leader in the next wave of payments.
PayPal is just coming off a strong fourth quarter, wherein it added 8.7 million net active customers, GAAP sales were up by 26% year over year, and earnings per share popped 57%, to $0.50.
Its Venmo app processed $35 billion in payments in 2017, up 97% from the year before. More than $10 billion in payments came in the fourth quarter, which is up 86% year over year. eMarketer estimates that mobile peer-to-peer (P2P) payments will reach $244 billion by 2021 in the U.S. alone, which means that all of Venmo's growth is creating a huge opportunity for PayPal to take a big piece of the P2P market.
Investors may be a little scared about the recent news that eBay is moving away from PayPal's payment platform, but there are some benefits. For one, PayPal will soon be free to work more closely with other companies, and the resulting share price drop will offer a buying opportunity for investors.
I think PayPal's current growth and its early moves with P2P mobile payments are setting the company up for strength in 2018 and beyond. Cryptocurrencies may be all the rage right now, but I think a better bet is to invest in this digital payment leader that's already transforming how we use money.
The market leader in blockchain
Leo Sun (IBM): IBM recently reported its first quarter of year-over-year revenue growth in almost six years. That turnaround was fueled by its growing "strategic imperatives" in the cloud, analytics, mobile, security, and social markets -- which offset ongoing declines at its legacy business hardware, software, and IT services units.
Within its strategic imperatives, IBM developed a platform for blockchain, the decentralized ledger technology that powers bitcoin and other cryptocurrencies. Last September, Juniper Research ranked IBM as the market leader in blockchain, with 40% of tech executives citing Big Blue as their top pick. Only 20% picked Microsoft, its closest rival, as a preferred blockchain provider.
Companies that use IBM's blockchain platform include Nestle, Unilever, Walmart, shipping giant Maersk, and top European banks. Nestle, Unilever, and Walmart use blockchain to trace their supply chains and check food safety, Maersk employs it to optimize its logistics, while banks use it to facilitate international trade. IBM also recently partnered with blockchain start-up Stellar to settle cross-border transactions with a custom cryptocurrency called Lumens.
Analysts expect IBM's revenue to rise just 1% this year, and for its earnings to remain nearly flat. Those numbers seem anemic, but the company is undergoing a transition, in which next-gen technologies like blockchain, artificial intelligence (AI), and quantum computing will gradually transform its core business. For now, IBM trades at just 11 times forward earnings, and pays a hefty forward yield of 4%.
A bet on cryptocurrency -- and much, much more
Danny Vena (NVIDIA): Laying down your hard-earned cash for cryptocurrency is tantamount to gambling. Those looking to benefit from the cryptocurrency mania without potentially losing their entire investment should instead consider NVIDIA.
The company offers the opportunity to benefit from the rise of digital currencies, without the inherent risk. Graphics processing units (GPUs) pioneered by the company have become the tool of choice for those "mining" cryptocurrencies, though it still represents just a small portion of its sales.
Most of NVIDIA's revenue comes from the sale of graphics processors for gaming. In the most recent quarter, revenue in the segment grew to $1.74 billion, up 29% year over year, which accounted for 60% of the company's revenue in its most recent quarter.
The ability to process a massive number of mathematical calculations at lightning speed, called parallel processing, is what enables GPUs to render images in gaming. This same functionality made them a natural fit for training AI systems as well. The growing adoption of AI across a variety of industries has been a boon to NVIDIA. The company's data center revenue, which houses sales related to AI, has produced seven consecutive quarters of triple-digit year-over-year growth -- and now a represents 21% of its sales.
NVIDIA has also been investing heavily in the systems that power self-driving cars, and expects demand in that market to accelerate beginning in late 2019 and drive significant gains by 2022.
To meet the additional demand created by digital currency mining, NVIDIA may be releasing at a conference next month dedicated GPUs designed specifically for the market, according to a report in Digital Trends.
While it may not provide the excitement of cryptocurrency, NVIDIA has the potential for substantial growth -- without losing your shirt.