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Following the creation of the first cryptocurrency Bitcoin (BTC) in 2009, other cryptocurrencies such as Ethereum (ETH) and Ripple (XRP), followed suit to bring further attention to blockchain technology.
But there’s a lot of potential for the blockchain. According to recent research led by Vida J. Morkunas of Lulea University of Technology, Sweden and published by the Kelly School of Business, Indiana University:
“Emerging technologies regularly serve as enabling forces for economic, social, and business transformation.. [B]lockchain placed among the top five technology trends in 2018… Therefore, blockchain is predicted to challenge existing business models and offer opportunities for new value creation.”
As you probably know, the blockchain is a public digital ledger and a record-keeping technology. All transactions that have written in blocks are immutable, and information can never be erased. Furthermore, they are transparent to all parties in question.
And while blockchain-based decentralized cryptocurrencies, such as Bitcoin, draw much attention, analysts concur there are significant opportunities for many industries in this disruptive technology. At present, the global blockchain market is valued at $3 billion, but is expected to reach $40 billion by 2025.
Here are 7 big tech stocks to buy for blockchain and crypto exposure:
- Alibaba (NYSE:BABA)
- Intel (NASDAQ:INTC)
- Intercontinental Exchange (NYSE:ICE)
- Overstock.com (NASDAQ:OSTK)
- Reality Shares Nasdaq NexGen Economy ETF (NASDAQ:BLCN)
- Silvergate Capital (NYSE:SI)
- Square (NYSE:SQ)
Regular InvestorPlace.com readers are likely familiar with a wide range of the companies responsible for the blockchain technology these cryptocurrencies are based on. There’s a big runway for potential growth here.
Big Tech Stocks to Buy for Blockchain and Crypto: Alibaba (BABA)
52-week range: $163.42 — $302.61
As the leading e-commerce platform and enterprise cloud services provider in China, Alibaba needs little introduction. With a market capitalization of $811 billion, it’s currently number 132 on the Fortune Global 500 list. And BABA stock recently notched a new all-time high this October.
The company’s success started with the growth of e-commerce in China, where it took 20% of total retail sales in 2019. The comparable 2019 number for the U.S. market was more than 10%. China is the world’s most populous nation, with around 1.4 billion people. In 2019, China’s digital customers numbered 855 million. Alibaba’s market share is more than half of all e-commerce sales in the country. Therefore, we can expect BABA stock to gain further from the growth of online shopping in China.
Analysts believe Alibaba’s revenues will be further driven by cloud services, which account for less than 10% of total revenues. However, that segment has seen growth of about 60% over the past year and is expected to become profitable in 2021. As more businesses migrate to cloud computing, BABA stock will possibly see new highs in the coming quarters.
How does crypto factor in to Alibaba’s growth? Earlier in the year, management announced its “international platform Tmall … [is using] blockchain to guarantee product quality.” The company provides its cloud customers a Blockchain as a Service (BaaS), “to build an Internet featuring mutual trust and efficient collaboration.”
According to a recent report, Alibaba is about the surpass International Business Machines (NYSE:IBM) as the single-largest holder of blockchain-related patents. Investors should expect Alibaba to be a frontrunner in the use of blockchain technology in the coming years.
So far in the year, Alibaba stock is up over 40%. Its forward P/E and P/S ratios stand at 32.05 and 10, respectively. We’d look to buy the dips in BABA shares.
52-week range: $43.63 — $69.29
Dividend yield: 2.5%
Intel is well-known as the world’s largest manufacturer of microprocessors, the central processing units (CPUs) of personal computers (PCs). The company also offers a range of semiconductor products.
Intel’s revenue comes from two sources: Data-centric (DCG), which accounts for 52% of revenue, and PC-centric. Management regards the data center as at the heart of its transformation from a PC company to one that powers the cloud.
In the quarters ahead, analysts expect DCG, which focuses on cloud service providers, enterprise government, and communication service providers, to drive Intel’s growth forward.
When the group announced Q2 results in late July, revenue came at 19.7 billion, an increase of 20% YoY. Data-centric revenue increased 34%, and PC-centric revenue increased 7% YoY.
The Santa Clara, California-based company believes, “Intel processor technologies have unique capabilities that can improve the privacy, security, scalability, and trust across blockchain networks.” For example, it sees blockchain as a potential solution in ensuring IoT (Internet of Things) security. The company works with Hyperledger, an open source community developing blockchain solutions. It also builds hardware for blockchain. As a result, investors can expect Intel to continue to be part of various developments in blockchain technology for years to come.
Despite its history, size and leadership position, like other semiconductor companies, Intel is prone to the sales cycles of the industry and competitive pressures, as well as demand trends for PCs.
Year-to-date (YTD), INTC stock is down about 12%, with forward P/E and P/B ratios of 11.00 and 2.91. As a result, the company may begin to appear on the radar for value investors. Long-term shareholders are also entitled to dividends.
Intercontinental Exchange (ICE)
52-week range: $63.51 — $106.99
Dividend yield: 1.19%
Atlanta, Georgia-based Intercontinental Exchange started life in 2000 as an electronic trading platform, serving mostly the energy markets. Since then it has expanded significantly, and now operates regulated exchanges, clearing houses as well as listings venues. For example, it owns the New York Stock Exchange (NYSE). It also offers a range of market data to support client activities in trading, price discovery, and risk management. In justtwo decades, it has become a formidable Fortune 500 company.
In late July, the group released earnings for the second quarter. Revenue of $1.395 billion meant an increase of 8% YoY. Adjusted net income and adjusted diluted earnings per share (EPS) were $584 million and $1.07, respectively. Like many other exchanges, increased volatility and trading volumes in 2020 contributed to higher revenues.
The company’s two revenue segments include Trading and Clearing (49% of revenue, with an operating margin of 46%) and Data and Listings (51% of revenue, operating margins of 60%).
CEO Jeffrey Sprecher expressed satisfaction with the quarter. CFO Scott Hill said:
“In the first half, we built on our track record of consistent revenue growth, expense discipline and earnings per share growth. This performance enabled us to return over $1.4 billion of capital to our stockholders through dividends and our stock repurchase program.”
In 2019, ICE started offering physically-settled monthly Bitcoin futures contracts, which are held in the Bakkt Warehouse, a custodian for Bitcoin storage. The exchange also has options on the futures. There is a separate cash-settled monthly futures contract for Bitcoin, too. Bakkt highlights, “These contracts help support the hedging and risk management requirements for a broad range of institutional market participants.”
ICE also offers cryptocurrency data feed to clients to help in price discovery. Since the exchange has a dominant place in the industry, investors can expect ICE to lead in offering new cryptocurrency products in the future.
YTD, the stock is up over 9%. Its forward P/E and P/B ratios are 21.79 and 7.62. A decline toward the $95-level in ICE stock would improve the margin of safety.
52-week range: $2.53 — $128.50
Salt Lake City, Utah-based Overstock.com is a tech-driven e-commerce company. Founded in 1999, it currently has three main segments:
- Retail — through its several websites, Overstock.com’s legacy business sells a range of household products as well as jewelry, electronics, and apparel, among others. Customers can pay for purchases with Bitcoin.
- tZERO Group (tZERO) — an alternative trading system (ATS) that is regulated by the Securities and Exchange Commission (SEC). tZero aims to become a platform for digitizing all sorts of asset classes. As a result, these digitized assets could trade via a secure digital ledger (i.e., blockchain). It is a subsidiary of Medici Ventures.
- Medici Ventures (MVI) — oversees Overstock.com investments in firms building solutions leveraging blockchain technologies.
In late July, the company announced Q2 results. Total net revenue hit a record $783 million and was up 109% YoY. Net income was $36 million and diluted earnings per share (EPS) were 84 cents.
Overstock CEO Jonathan Johnson said, “Second quarter gross sales in our Overstock Retail business more than doubled year over year… tZERO and our other Medici Ventures blockchain-based businesses continue to make progress, with several of those companies attracting media attention for their solutions to problems the country now faces.”
tZERO’s net revenue came at $13 million, up 129% YoY. Management credited the increase in SpeedRoute trading volume. For example, in August, 2020, tZERO recorded its strongest month ever as “It traded over 2.3M digital securities, a 21x increase compared to August 2019, and transacted nearly $22.0M of securities, exceeding the previous record of $7.6M set in July.”
Many analysts concur Overstock.com is on a journey from being an online retailer to a blockchain and cryptocurrency company. Its current increased retail revenue may help management to fund various blockchain-related ventures.
So far in 2020, OSTK stock is up over 1,000% (no, that is not a misprint) as it started the year around $7. Those investors who are interested in the growth of blockchain technology and crypto-trading may want to buy the dips in Overstock.com
52 Week Range: $17.69 — $37.50
Dividend Yield: 0.7%
Expense Ratio: 0.68%
Recent years have seen the continuous introduction of thematic exchange-traded funds (ETFs). If you want to join the blockchain and crypto revolution via an ETF, then you may want to research the Reality Shares Nasdaq NexGen Economy ETF. It provides exposure to businesses that develop or utilize blockchain technology. The fund started trading in 2018.
BCLN, which has 67 holdings, tracks the Reality Shares NASDAQ Blockchain Economy Index. The top sector allocation is Information Technology (47.16%), Financials (26.2%), Communication Services (12.9%), and Consumer Discretionary (9.8%). Square, Overstock.com, International Business Machines, Microsoft (NASDAQ:MSFT), and JD.com (NASDAQ:JD) head the list of companies.
Around half of the businesses come from the U.S., followed by Asia, Europe and Australia. The top ten holdings constitute over 17% of BLCN’s net assets, which stand around $120 million.
YTD, the fund is up about 38%. It could be an appropriate basket of securities for a range of long-term portfolios that want exposure to the developing technology.
Silvergate Capital (SI)
52-week range: $7.60 — $16.95
Our next discussion centers around a financial institution. The La Jolla, California-based Silvergate Capital is the holding company for Silvergate Bank, a provider of solutions for the digital currency industry.
Silvergate Capital, which went public in November 2019, provides services in commercial banking, business lending, and real estate mortgage solutions. In addition, it operates the Silvergate Exchange Network (SEN), a network of digital currency exchanges and digital currency investors.
In late July, Silvergate Capital announced Q2 financial results. Net income for the quarter came at $5.5 million, or 29 cents per diluted share. A year ago, the numbers were $5.2 million and 28 cents, respectively.
As of June 30, the bank had 881 digital currency customers. A year ago the number was 655. Customers include digital currency exchanges, over-the-counter (OTC) trading desks, institutional investors and crypto businesses, such as mining operations or crypto application companies.
Transfers across the SEN network totaled $22.4 billion, up from $8.6 billion in Q2 2019. Digital currency customer related fee income for the quarter was $2.4 million, up from $1.1 million a year ago.
Alan Lane, president and chief executive officer of Silvergate, commented, “As we continue to grow both our digital currency customers and their utilization of the SEN, the network effect and competitive moat of our global payments platform further expands. As part of this, I am very pleased with the expansion of our newest product, SEN Leverage, which during the quarter expanded our bitcoin collateralized loans to $22.5 million in approved credit from $12.5 million in the first quarter…”
Like Overstock.com, Silvergate has been pivoting from its core business, i.e, commercial banking, to serving the cryptocurrency community. Although it is not a traditional tech business, we believe the financial institution deserves your attention. SI stock is down about 3% YTD.
52-week range: $32.33 — $188.74
Fintech darling Square offers services that enable transactions between merchants and their consumers, including financial and merchant services, a mobile payments platform, as well as hardware such as point of sale (PoS) equipment. Through Square Capital, the business has also moved into small business lending. It is led by Twitter’s (NYSE:TWTR) co-founder and CEO Jack Dorsey.
In August, the San Francisco, California-based group reported Q2 earnings. Total net revenue of $1.92 billion meant a YoY increase of 64%. Gross profit of $597 million was also up 28% YoY. Cash App’s gross profit went up by 167% YoY to hit $281 million.
Four main segments contribute to the revenue:
- Transaction-based (about 35% revenue);
- Subscription and services-based (about 18% contribution);
- Hardware (about 1% contribution); and
- Bitcoin (about 45% contribution).
As the most recent quarterly earnings showed, its Bitcoin operations are increasingly becoming a key catalyst for the company. Earlier in October, Square made the headlines when it announced it bought $50 million in Bitcoin, and released a “Bitcoin Investment Whitepaper.”
Management highlighted, “Square has been a leader in the bitcoin space since 2018 through our Cash App product, which provides customers the ability to buy and sell bitcoin… [T]he company formed Square Crypto, an independent team solely focused on contributing to bitcoin open source work for the benefit of all. Square also recently launched the Cryptocurrency Open Patent Alliance (COPA), a non-profit organization encouraging crypto innovation.”
Square was not shy about its belief in the future of the cryptocurrency as it said “we believe now is the right time for us to expand our largely USD-denominated balance sheet and make a meaningful investment in bitcoin. We view bitcoin as an instrument of global economic empowerment.”
YTD, SQ stock is up about 200%. Investors can expect more to come from Square in the crypto sphere.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. She also publishes educational articles on long-term investing.