The crypto market has witnessed a roller coaster ride this year but has generated profitable returns. In early December, the digital currency topped around $44,000 for the first time since April last year and gained above 150% year-to-date, primarily fueled by optimism for a spot bitcoin ETF.
Amid this backdrop, it could be wise to add quality crypto-centric stocks NVIDIA Corporation (NVDA) and Block, Inc. (SQ) to your watchlist.
Cryptocurrency prices are rebounding after a so-called “crypto winter” that was aggravated by the collapse of the FTX exchange in 2022. Last year was highlighted by hedge fund collapses, crypto lender failures, and worsening losses at miners, which was punctuated in November 2022 when the FTX spiraled into bankruptcy.
While the Bitcoin price surged more than 150% from the same time last year, shares of Coinbase (COIN), MicroStrategy (MSTR), and the Grayscale Bitcoin Trust (GBTC), all closely tied to the digital currency, rose more than 300% in value. Ethereum, another major coin, is up approximately 85% from this time in 2022.
Yesterday, the Bitcoin price jumped to nearly $43,446.82, a significant win for investors who got in at the start of the year when the price was around $16,500.
One of the primary drivers for the Bitcoin surge this year was an easing of the Fed’s interest rate increases, which created an attractive case for riskier assets. Crypto prices were further strengthened by the upcoming bitcoin halving, which occurs every four years and is scheduled for May 2024. During the halving process, the reward for mining is slashed in half, capping the supply of bitcoin.
Additional buying was fueled by the potential for a flurry of bitcoin ETFs emerging in the new year.
This year, various leading financial firms, including BlackRock, WisdomTree, Fidelity, and others, asked the Securities and Exchange Commission (SEC) to approve a spot bitcoin ETF. This approval of the first U.S. spot bitcoin ETF awaited in January 2024, would be a milestone for cryptocurrency investors.
“For ETF investors, this would be the best product on the market,” said Bryan Armour, director of passive strategies research for North America at Morningstar. “All the other options right now have flaws to varying degrees.”
At present, U.S. investors can buy bitcoin futures ETFs, which own bitcoin futures contracts or agreements to buy or sell the asset later for an agreed-upon price. This long-awaited bitcoin spot ETF can invest in the digital asset directly.
Given an enhanced optimism surrounding the crypto space, crypto-centric stocks NVDA and SQ could be solid watchlist additions now.
Let’s take a closer look at the fundamentals of these stocks:
NVIDIA Corporation (NVDA)
NVDA offers graphics, and compute and networking solutions globally. It provides GeForce GPUs for gaming and PCs, Quadro/NVIDIA RTX GPUs for enterprise workstation graphics, Data Center platforms and systems for AI, HPC, and accelerated computing, cryptocurrency mining processors, and more. The company serves the gaming, data center, and automotive markets.
Cryptocurrency mining requires specialized computer hardware, including GPUs. NVDA saw an immense opportunity in this market and boosted the production of specialized GPUs for cryptocurrency mining. For instance, the NVIDIA GeForce GTX 1070 became highly popular among miners due to its high hash rate and power efficiency.
On November 13, NVDA announced that it had supercharged the world’s leading AI computing platform with the introduction of the NVIDIA HGX™ H200. Based on NVIDIA Hopper™ architecture, the platform features the NVIDIA H200 Tensor Core GPU with advanced memory to handle enormous amounts of data for generative AI and high-performance computing workloads.
The NVIDIA H200 is the first GPU to offer HBM3e — faster, larger memory to boost the acceleration of generative AI and large language models while advancing scientific computing for HPC workloads. This new processor optimized for AI applications is expected to extend the company’s market reach and drive its growth.
NVDA’s trailing-12-month gross profit margin and EBITDA margin of 69.85% and 49.39% are favorably higher than the industry averages of 49.14% and 9.25%, respectively. Likewise, the stock’s trailing-12-month net income margin of 42.10% is 1,694.7% higher than the industry average of 2.35%.
In terms of forward non-GAAP P/E, NVDA is trading at 40.18x, 59.7% higher than the industry average of 25.16x. Moreover, the stock’s forward EV/Sales and Price/Sales multiples of 20.59 and 20.77 are significantly higher than the industry averages of 3.03 and 3.08, respectively.
For the fiscal 2024 third quarter that ended October 29, 2023, NVDA’s revenue increased 205.5% year-over-year to $18.12 billion. Its gross profit grew 321.8% year-over-year to $13.40 billion. The company’s non-GAAP operating income rose 652.4% from the year-ago value to $11.56 billion.
In addition, the company’s non-GAAP net income and EPS came in at $10.02 billion and $4.02, up 588.2% and 593.1% year-over-year, respectively. But as of October 29, 2023, NVDA’s current liabilities increased to $9.10 billion, compared to $6.56 billion as of January 29, 2023.
Analysts expect NVDA’s revenue and EPS for the fourth quarter (ending January 2024) to increase 231.1% and 411.1% year-over-year to $20.03 billion and $4.50, respectively. Also, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
NVDA’s stock has gained 10.4% over the past six months and 252.8% over the past year to close the last trading session at $495.22.
NVDA’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
NVDA has an A grade for Growth and a B for Quality and Sentiment. However, it has a D grade for Value. It has ranked #28 out of 91 stocks in the Semiconductor & Wireless Chip industry.
To see the other ratings of NVDA for Momentum and Stability, click here.
Block, Inc. (SQ)
SQ operates as a technology company with a primary focus on financial services. The company’s products include Square, which makes commerce and financial services easy and accessible for sellers with its integrated ecosystem of technology solutions; Cash App to send, spend, or invest money in stocks or bitcoin; Afterpay for connecting consumers and businesses; and more.
On December 7, Bitkey, the self-custody Bitcoin wallet built by SQ, launched in more than 95 countries across six continents, widening access to self-custody and empowering people worldwide to own and manage their Bitcoin easily and safely.
Bitkey includes a mobile app to make transactions easily on the phone, a hardware device to protect savings securely offline, and a set of recovery tools in case customers lose their phone, hardware, or both. This global launch of a self-custody Bitcoin wallet might bode well for SQ.
On November 16, SQ’s Afterpay, one of the global leaders in “Buy Now, Pay Later” payment and Rokt, the leading e-commerce tech company, announced a partnership enabling Afterpay to offer its e-commerce shoppers highly relevant offers at checkout, which creates a more relevant and engaging shopping experience while driving new revenue and deepening customer lifetime value.
SQ’s trailing-12-month gross profit margin of 34.69% is 42.6% lower than the 60.37% industry average. In addition, its trailing-12-month EBIT margin and net income margin of negative 1.64% and negative 1.36% compared to the industry averages of 20.95% and 25.21%, respectively.
In terms of forward EV/Sales, SQ is trading at 2.22x, 29.9% lower than the industry average of 3.16x. However, the stock’s forward non-GAAP P/E multiple of 41.50 is 284.6% higher than the industry average of 10.79. Also, its forward EV/EBITDA of 28.97x is 141.6% higher than the industry average of 11.99x.
In the third quarter that ended September 30, 2023, SQ’s Bitcoin revenue increased 37.5% year-over-year to $2.42 billion, and its total net revenue came in at $5.62 billion, up 24.4% year-over-year. Also, the company’s gross profit rose 21.1% from the year-ago value to $1.90 billion.
However, the company’s operating loss and net loss came in at $9.91 million and $33.76 million, respectively.
Street expects SQ’s revenue for the fourth quarter (ending December 2023) to increase 21.6% year-over-year to $5.65 billion. The company’s EPS for the ongoing quarter is estimated to grow 160.5% year-over-year to $0.57. Also, SQ surpassed the consensus revenue estimates in all trailing four quarters.
SQ’s stock has gained 22.8% over the past six months and 34.6% over the past year to close the last trading session at $79.51.
SQ’s POWR Ratings reflect this mixed outlook. The stock has an overall rating of C, which translates to a Neutral in our proprietary rating system.
The stock has a C grade for Value and Sentiment. SQ is ranked #64 out of 102 stocks in the Financial Services (Enterprise) industry.
In addition to the POWR Ratings I’ve just highlighted, you can see SQ’s ratings for Quality, Momentum, Growth, and Stability here.
What To Do Next?
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NVDA shares were unchanged in premarket trading Friday. Year-to-date, NVDA has gained 239.02%, versus a 26.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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