Sometimes, the quest for growth leads investors to strange places. For instance, Ginkgo Bioworks (DNA 1.96%) and Shiba Inu (SHIB 0.65%) are both investments that people look to for exposure to big upside.
But the similarities end there, and it’s important to understand why one of the pair is a far better option for pretty much everyone. Here’s why.
Ginkgo’s growth story is starting to pick up speed
Ginkgo Bioworks is a biotech that’s planning to grow by scaling up its research and development (R&D) services platform using a combination of artificial intelligence (AI) and laboratory automation.
Management refers to that platform as a biofoundry, in a reference to the microchip foundries of the semiconductor industry. If you’re not familiar with the term, you can think of a foundry as a type of business that focuses solely on capturing economies of scale in manufacturing rather than designing new products itself; customers bring the blueprints for whatever it is they want to make, and they pay for the foundry to implement their specifications.
In contrast to semiconductor foundries, Ginkgo’s foundry is intended for creating bioengineered microorganisms like yeast and isolating their desired outputs, like ethanol or more-complex biomolecules like dairy proteins.
For its target customers in the biopharma, agriculture, chemicals, and food industries, those capabilities are highly desirable, assuming the company can deliver on its core goal of offering its services for a much lower cost than what its clients would be able to do without its help.
So far, more than 76 businesses — including Novo Nordisk, Moderna, Pfizer, and Bayer — have collaborated with it. In total, it’s working on 116 collaborations, with more likely on the way. In the third quarter, that led to Ginkgo collecting $37 million from its biofoundry activities, up 51% compared to a year prior.
There’s one crucial catch with this biotech: It isn’t anywhere close to being profitable, and it’s burning money with each additional program its biofoundry takes on. In the trailing-12-month (TTM) period, its cash losses were above $405 million. But it has more than $1 billion in cash and equivalents, so there is still plenty of time for it to become more efficient.
The big question is whether management’s thesis about the economies of scale in its biofoundry is true or false. It claims that serving the demand for certain types of foundry programs is getting faster, more reliable, and less expensive.
And while it’s true that its operating margin is improving over the last year, it’s still deeply in the red. The risk for investors who buy Ginkgo stock is that actual bottom-line growth will take very long to arrive — or perhaps it won’t arrive at all if it’s harder than anticipated to realize the desired efficiencies in production.
Could Shiba Inu still mint new millionaires?
With a market cap of around $6 billion, Shiba Inu is one of the 20 largest cryptocurrencies. More than one trader made millions on its wild run-up during the crazy cryptocurrency bubble of 2021, and there is nothing concrete that’s stopping a similar bull run in the future.
But the coin is currently priced around 87% lower than at its all-time high in late October 2021. Nonetheless, it’s worth 11% more now than it was a year ago, suggesting that it could indeed be a credible source of growth in your portfolio. The trouble is, there’s no remotely reliable mechanism for Shiba Inu to gain in value.
If meme investors can drum up enthusiasm by crafting sillier and sillier dog jokes, it will rally. On the other hand, if there isn’t a lot of money flowing into the crypto market in general, or if another coin has snappier memes, expect Shiba Inu to languish and perhaps plummet.
There isn’t any management team here that is in any way accountable to investors, and there isn’t any kind of convincing growth narrative for increasing adoption of the coin. Nor is there much in the way of valuable capabilities that would strongly differentiate it from other cryptocurrencies.
This is an easy call
Shiba Inu is a joke coin meant for having fun with making memes, and for likely irresponsible financial speculation (gambling). Ginkgo Bioworks is a biotech that’s working on a compelling (if unproven) business model, and it already has plenty of money and buy-in from crucial players in its target markets. There isn’t much of a contest here; Ginkgo is by far the better growth investment.
But don’t take that to mean that it’s a low-risk purchase. There’s a real chance that it will need to raise more money by issuing more shares at some point, which is a risk if you buy it now. Still, it at least has a believable path to becoming profitable and growing durably, and in the long term, that means it’s a much better bet.
