Many technology stocks have been hammered at the beginning of 2022, but the business is performing stronger than ever. Cryptocurrencies have also had a rough past few months, with Bitcoin (BTC -2.84%) falling more than 35% from its all-time high. With bargains popping up left and right, many investors might be wondering where to place some cash.
If an investor is deciding between high-quality stocks and cryptocurrency to buy on the dip, they might want to consider these three stocks over any cryptocurrency. The companies have been hit hard, yet each company is still operationally robust. Investments in these companies are much less speculative than any sort of cryptocurrency. Here's why I think Upstart Holdings (UPST -7.89%), DigitalOcean Holdings (DOCN -2.79%), and Unity Software (U -3.48%) would be better investments for the next decade than any cryptocurrency.
Image source: Getty Images.
1. Upstart
Upstart has fallen almost 70% off its all-time high, which can be painful for any investor. But it is important to recognize that nothing fundamentally has changed with the business, and the stock could have an extremely bright future over the next decade, potentially shooting past its former all-time highs.
Upstart is upending the traditional loan determination system by using artificial intelligence (AI) to analyze over 1,000 variables. Instead of basing a loan decision on a FICO score (which can often be inaccurate when it comes to those with lower credit scores), the platform looks at hundreds of other inputs that are potentially more accurate. In an internal study, Upstart found that its AI can approve 173% more people than traditional banks while keeping its loss rate the same. With such an accurate platform, its determinations have gained popularity with smaller banks around the country.
Upstart's client total is still small, but it is growing like wildfire. The company had just 31 banking partners by the end of the third quarter of 2021. Those partners generated over 363,000 loans, totaling $3.1 billion in loan volume -- 244% higher than the year-ago period, resulting in 250% top-line growth year over year in the third quarter.
The company is also profitable, generating $29 million in GAAP net income in the third quarter, up 199% year over year. This impressive ability to expand extremely fast while being profitable is almost unheard of in growth companies, especially those growing at triple-digit rates. As a result, the company trades at 17 times sales, which is high, but the lowest it has been since it came public in December 2020.
Upstart is disrupting a major part of the financial system, and it is seeing success so far. While it is a risky bet for the next decade, the company's impressive performance could give it much more credibility than any cryptocurrency. And if it succeeds, the growth potential is extremely large -- which is why I would invest in it before even thinking about crypto.
2. DigitalOcean
Like Upstart, DigitalOcean has been crushed lately, falling 12% in 2022 alone. But the company is seeing stunning success in the cloud space, focusing on cloud services for small and medium-sized businesses (SMBs). It has created a simple, transparent, and easy-to-use platform for SMBs that the big cloud providers like Amazon's (AMZN -1.35%) AWS haven't been able to replicate.
The SMB cloud space is expected to become a $116 billion market by 2024. DigitalOcean is dominating the cloud space, with almost 600,000 customers that have generated over $455 million in annual recurring revenue for the company. DigitalOcean is also almost break-even in terms of profitability. In Q3 2021 it lost just $1.9 million, which represents less than 2% of Q3 revenue. With over $29 million in free cash flow so far this year, its net loss is not a major concern.
The big tech companies focus mainly on enterprise customers, so AWS or Microsoft's (MSFT -1.96%) Azure are out of their realm when it comes to SMBs. Additionally, the space is simply not big enough for these multitrillion-dollar companies to make it worthwhile, allowing smaller companies like DigitalOcean to soak up the entire market. At 16 times sales, it is an appealing buy today, one with a large market and an established record that gives me confidence the company could dominate this niche for the next decade.
3. Unity
Following suit, Unity's stock has also been shattered recently. Shares hit a high in late November, but have crashed 40% since then. Yet the company hasn't lost any major customers and remains one of the most dominant places to go for developers to create, operate, and monetize their video games.
The company saw significant growth in its most recent quarter, increasing its top line by 43% year over year to $286 million. Unity has also made its monetization solutions more valuable with a partnership with Meta Platforms (META -2.28%). While its net losses are large -- the company lost $115 million in Q3 2021 -- they have been decreasing. In the year-ago quarter, the company lost $142 million, so its loss of just $115 is a solid improvement. With its leadership in a fast-growing space, I would expect that this net loss will continue to trend in the right direction over the coming years.
The deal allows developers to have access to a new array of advertisers, maximizing the monetization of their games. This partnership will make Unity's game developers happier and more willing to work on Unity, likely resulting in higher retention of its developers.
Although Unity is more expensive than both Upstart and DigitalOcean, it is still a much better potential investment than cryptocurrency. Unity trades at 33 times sales, but deserves its high premium. It's a leader, with over 1.5 million active developers. Additionally, the company helped develop one of the world's most popular games, Among Us.
With such a record of success, Unity could continue growing along with the gaming industry, which is one of the fastest-growing media categories, worth over $159 billion. Not only does Unity have a more robust business than many cryptocurrencies, but its potential is also extremely large. Ultimately this combination makes it a much safer choice than Dogecoin (DOGE -0.10%) or most other cryptos in my opinion.
