This is a phenomenon you must keep up with. And we will.
While Bitcoin’s price is determined the same way a stock’s price is – through price discovery on an exchange – just like stocks, many other factors cause things to get much more complex.
So a lot of catalysts went into driving Bitcoin’s price up close to 2,000% during 2017. And a whole ‘nother set of factors drove it down from north of $19,000 in mid-December to around $8,500 today.
I’m talking about threats of regulation, actual regulation, comments from this or that government official, market manipulation, and good, old-fashioned hype.
Meanwhile, current Bitcoin owners should – as the kids say – “hold on for dear life“… for the highly profitable forks that are going to keep on coming. And for Bitcoin’s virtually guaranteed resurgence.
And for those of you new to cryptos or wanting to stay in on the action, there are ways to profit from this market without having to buy Bitcoin or any other crypto coin.
I showed you one way a couple of weeks ago.
And today I’m bringing you another.
The Flip Side of Crypto Investing
When we spoke back on Jan. 19, I recommended Microsoft Corp. (Nasdaq: MSFT) as a profitable way to play cryptocurrencies without the roller-coaster rides.
That’s because Microsoft has made blockchain technology a key part of their Azure cloud computing platform. The system even comes with easy-to-deploy templates that allow users to plug into the most popular crypto ledgers. Microsoft also says Azure’s built-in blockchain is designed to help developers write enterprise-wide applications that can integrate into existing cloud services.
But there’s a flip side to “pick-and-shovel” crypto coin investing.
See, Microsoft gives us great exposure to the cloud-based software integral to the field.
Now, we want to do is round out our crypto investments and “Buy” some hardware.
Here’s the thing. Bitcoin and other cryptos are “mined” on very advanced computers with a lot of raw processing power.
While the equipment required now is just too expensive for regular folks, when I first got involved in this field in early 2013, it was still possible to mine Bitcoin on your home computer.
Granted, you needed to buy a powerful machine and spend hundreds more to upgrade the processing power. But you really could mine your own crypto.
That’s because Bitcoin mining then involved solving cryptographic math problems that a really good semiconductor could handle. But as the number of transactions and people accessing the Bitcoin network grew exponentially, the network shifted to even more expensive graphics cards.
These are the devices that make computer gaming and virtual reality so immersive. Yes, they’re powerful, but not even these devices could keep pace with growing demand and the ever-increasing complexity of the cryptographic problems.
That’s where my “pick” today comes in.
It’s a Silicon Valley semiconductor leader whose programmable chips are being scooped up left and right by industrial-grade Bitcoin miners.
And it’s a firm whose crypto mining chips recently helped it report record sales in its ninth straight quarter of rising revenue.
The Hardware Miners Need
Many of today’s miners are seeking out an advanced type of logic chip known as a field programmable gate array (FPGA).
For two very good reasons:
- These are very powerful integrated circuits that can blaze through complex calculations.
- As their name implies, FPGAs can be programmed out in the field – allowing users to tweak them to meet specific needs.
And that’s why the FPGAs developed by San Jose, Calif.-based Xilinx Inc. (Nasdaq: XLNX) are tearing it up among Bitcoin miners.
In the most recent quarter, Xilinx booked roughly $12 million in Bitcoin-related sales. That may not sound like much, but it almost certainly had a material impact on the firm’s bottom line for its fiscal third quarter.
Without the FPGA sales for the crypto sector, the firm likely would have missed Wall Street’s forecasts. Moreover, Xilinx has already booked another $8 million in Bitcoin FPGA sales in just the first few weeks of 2018.
Of course, there’s a lot more going on with Xilinx than Bitcoin mining…
From Aerospace to Machine Learning
Xilinx ranks as one of the most advanced chip designers in the world, and its FPGAs play a key role in a range of industries.
For example, 47% of sales come from aerospace and defense. Another 35% of sales come from the communications and data center segments. Most of the rest of sales are derived from the broadcast, consumer, and automotive sectors.
If you add up all the value of those sectors, you’re talking about total addressable markets of more than $2.6 trillion. And much of Xilinx’s current R&D efforts are aimed at tapping into new fields that will grow into massive ones.
For example, machine learning. That’s the field where computer scientists are getting our machines to take action on their own – without programming. The analysts at MarketsandMarkets say the sector will grow from $1.41 billion in 2017 to $8.81 billion by 2022. That’s an impressive compound annual growth rate (CAGR) of 44.1%
For the past few years, the company has been building what it calls the Xilinx Deep Neural Network (xfDNN) Library. That library will help Xilinx’s clients customize their FPGAs to handle a broad range of machine learning applications.
Xilinx is also developing chips that can handle the speed of superfast 5Gwireless networks. By 2020, more than 50 billion devices will be connected to those lightning-quick networks, including many Internet of Everything (IoE)-connected devices. The firm says its flexible family of chips will “support multiple standards, multiple bands and the multiple sub-networks that enable the many diverse IoE driven applications of 5G.”
Xilinx has also developed a wide range of chips that support autonomous driving features and self-driving cars. The firm is seeing growing demand for its chips that can handle image and video processing, object recognition, and analytics – and that will help collision-avoidance systems to work 100% of the time.
As you can see, Xilinx is sweating it to be sure it plays a major role in as many emerging technologies as possible. The firm has been boosting its R&D spending at a steady clip, and now spends more than $600 million per year.
The downside to that surge is that profits will likely fall around 15% this year. But by next year, as more of those profitable new chips see growing demand, look for profits to rebound nearly 50% – to almost $3 a share.
Part of the projected profit gains will come from chips with higher profit margins. In fact, gross margins surpassed 70% in 2017 for the first time in the firm’s history.
Of course, Xilinx isn’t building a platform of chips for just next year. It’s very well positioned for the next decade… or two.
As the spike in Bitcoin-related sales shows us, all these practically brand-new technologies will furnish Xilinx with many, many ways to grow
And all of them will lead to a steadily higher share price for you.
So now we’ve got a powerful one-two punch when it comes to pick-and-shovel crypto investing.
We’ve got Microsoft for cloud-based blockchain management of cryptos – and now Xilinx for the hardware needed to mine them.
But we’re not done yet.
We’ll be back with my next crypto-related pick soon.
*This has been a guest post by Money Morning*