Bitcoin has been one of the best performing investment assets of the last decade. Despite its volatility, the cryptocurrency has produced life-changing returns for investors who have bought and held on for the long haul. However, this does not make it an automatic buy for investors today.
Cryptocurrencies lack one thing compared to stocks: cash flow. These digital currencies may excite investors, but they are no more than gambles on whether other investors will buy alongside you, driving up the price along with it. For this reason, cryptocurrencies are incredibly risky compared to most stocks you can buy that are anchored to the annual cash flows generated by an underlying business.
Here are two stocks with more potential than any cryptocurrency, due to the gobs of cash flow they generate for shareholders each and every year.
1. Alphabet's AI promise
First up is Alphabet (GOOG +2.00%). The technology conglomerate at the forefront of artificial intelligence (AI) innovation owns Google, YouTube, Google Cloud, and Waymo (the self-driving taxi network). With a market capitalization of around $3 trillion, Alphabet is one of the largest companies in the world today.
Growing disruption from AI to software and technology businesses has been pitched as a threat to Alphabet, but there is no business better positioned to take advantage of the AI boom. Alphabet has billions of users across Google, YouTube, Google Maps, and other digital services who can be used to train its AI tools such as Gemini. It has the tensor processing unit (TPU), a customer computer chip it has innovated on for a decade that enables it to process more AI queries than the competition like OpenAI.
NASDAQ: GOOG
Key Data Points
These advantages should lead to sustained AI revenue growth for Alphabet over the next few years. Subscription revenue grew 20% year over year last quarter to $11.2 billion, which is where revenue from Gemini is segmented. Google Search is still chugging along just fine, with revenue up 12% year over year to $54 billion last quarter.
Of course, Alphabet is generating a lot of free cash flow -- $67 billion in the last 12 months, to be exact. This is at the same time that the company is spending a record amount on capital expenditures to expand its data center footprint, at $67 billion over the last 12 months and a projected $75 billion in 2025. Compare that to OpenAI never generating positive cash flow and it is clear that Alphabet is the best AI stock to bet on over the long term.
2. Traveling the world with Airbnb
Airbnb (ABNB +2.71%) may be a beneficiary of AI as it improves consumer search for travel on its platform, but the stock is a much simpler story for investors to buy today. The travel service focused on unique home-sharing lodging is pushing to new geographies to drive more people to host their real estate on Airbnb, which will enable more people to book homes on the platform.
By localizing marketing and tailoring the Airbnb platform to different countries, Airbnb has recently seen an acceleration in bookings in countries like Japan and Germany. Even though Airbnb had $23.5 billion in gross booking value through its network last quarter, the travel portal is still driven by a few countries such as the United States, United Kingdom, and France. Expanding to new tourist destinations such as Japan and Mexico can help the company accelerate growth in the coming years.
This is not to say that Airbnb's revenue is weak today. Revenue was $11.6 billion over the last 12 months, grew 13% year over year last quarter, and is up 243% cumulatively in the last five years.
NASDAQ: ABNB
Key Data Points
Even though this is a relatively young business, Airbnb is generating strong amounts of free cash flow while simultaneously investing for the future. Free cash flow totaled $4.3 billion over the last 12 months, which Airbnb is using to consistently retire its shares outstanding through share buybacks (something Alphabet is doing as well). This will help grow earnings per share (EPS) in the long term.
When you look at the underlying financials, it is clear that both Alphabet and Airbnb are better investments over the long term than a gamble on cryptocurrencies.
