Cryptocurrencies are far from mainstream. However, they continue to hog the limelight primarily due to their potential to deliver extremely high returns. Before jumping to any conclusion and treating them as an alternative investment, note that cryptocurrencies exhibit outsized volatility, implying they witness wild upswings and downturns.
Take Bitcoin, the most popular cryptocurrency, for example. Its growing acceptance, appearances on the balance sheet of publicly traded companies, and investors’ interest led to a meteoric rise in its value. Nevertheless, this year’s hot streak soon lost momentum as China and several other countries clamped down on cryptocurrencies and barred their banks from dealing in them.
Combining these factors, one can ascertain that there is plenty of skepticism around cryptocurrencies. Yet, like it or not, cryptocurrencies are here to stay and could continue to gain acceptance in mainstream finance.
So using the TipRanks stock comparison tool, let us compare Coinbase, a pure-play cryptocurrency stock, and Nvidia, a chipmaker with exposure to cryptocurrency, and see how Wall Street analysts feel about these stocks.
Coinbase, a leading cryptocurrency exchange, made a solid debut on Nasdaq in April 2021. However, the euphoria around its stock began to wane, and it started trading below the reference price of $250 a share set by Nasdaq as crypto volumes slowed in June. (See Coinbase stock chart on TipRanks)
Nevertheless, Coinbase reported Q1 solid 2021 financial numbers in May. It had more than 56 million verified users and 6.1 million monthly transacting users (MTUs) at the end of Q1, significantly higher than the comparable prior-year period.
Trading volume surged to $335 billion from $30 billion in Q1 2020, reflecting growing consumer and institutional adoption of crypto assets and an increase in unique crypto assets trading on its platform. Its total transaction revenue surged to $1.5 billion compared to $172 million in the prior quarter, while total subscription and services revenues jumped 694% to $56.4 million year-over-year.
Despite the stellar performance, Q1 results did not seem to convince Mizuho Securities analyst Dan Dolev, who reiterated a Hold rating and maintained the price target at $225 on the stock. In a note to investors, Dolev said, “following outsized trading volumes in April and May, the crypto winter that began in June still reigns as 3Q knocks on the door. While 2Q volumes should be elevated, meager crypto volumes lingering bodes poorly for the remainder of 2021.”
Dolev said that combined average daily trading volumes for April and May stood at $5.9 billion. However, it dropped to $2.9 billion in June. He added, “as a result of changes in crypto volatility, we raise our 2Q revenue estimate by $400mn to $2.044bn. However, we reduce our 3Q estimate by $100mn to $1.211bn.”
Overall, 16 of Wall Street’s analysts have weighed in on Coinbase shares, giving the stock 11 Buys, 4 Holds, and 1 Sell, for a Moderate Buy consensus rating. The average Coinbase price target of $382.60 implies approximately 62.5% upside potential to current levels.
Nvidia designs and markets GPUs (graphics processing units) for gaming and PCs. Furthermore, it provides data center platforms and systems for AI (artificial intelligence) and HPC (high-performance computing). Its stock has more than doubled in one year, reflecting strong demand for its GPUs and opportunities in AI. (See Nvidia stock chart on TipRanks)
In Q1, Nvidia delivered record revenue of $5.7 billion that surged 84% from the year earlier on the back of strong momentum across its gaming, professional visualization and data center platforms. Its adjusted operating income more than doubled to $2.6 billion, while adjusted net income jumped 107% to $2.3 billion.
Gaming, which accounted for about 49% of its total revenue, soared 106% year-over-year, thanks to the higher sales in GeForce GPUs and benefits from cryptocurrency mining demand. Notably, Nvidia introduced a dedicated GPU (Cryptocurrency Mining Processors or CMP) for cryptocurrency mining, but the heightened volatility in cryptocurrencies and semiconductor shortage raises concern.
However, Bank of America Securities analyst Vivek Arya thinks otherwise and termed crypto headlines a “sideshow.” Arya reiterated his Buy rating with a price target of $900 on the stock and views Nvidia as a “top computing pick.”
In a note to investors, Arya said, “NVDA’s PC gaming graphics cards (GPU) are used off-label for mining certain crypto-currencies (Ethereum, not Bitcoin), making NVDA stock sensitive to daily crypto-currency price volatility.”
He added, “based on pricing checks and industry discussions, we believe these concerns are overstated, and this cycle can be different than the 2018/19 cycle when crypto prices/NVDA stock went through similar volatility. Meanwhile, the fixation on crypto could be diverting/diluting focus from the real trend which is NVDA’s emerging position as an enterprise AI leader.”
Consensus among analysts is a Strong Buy based on 28 Buys and 1 Hold. The average Nvidia price target of $769.69 implies approximately 7.0% downside potential to current levels.
While analysts are cautiously optimistic about Coinbase, they are upbeat on Nvidia. However, considering the recent up-move in Nvidia stock, it appears that the positives are fully priced in at current levels. Moreover, based on the upside potential over the next 12 months, Coinbase seems to be a better cryptocurrency play.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.