In just the past week, WISeKey International Holdings (WKEY) has jumped by more than 85%.  The reason for this dramatic move was that the company announced that it’s developing an application for non-fungible tokens (NFTs) to validate ownership of physical and digital objects of value. 

WKEY Profile

WKEY is a cybersecurity company that focuses on security solutions for the Internet of Things (IoT) and digital identity validation. For the latter, the company has been utilizing blockchain technology to power its digital identity certificate management, signing solutions, and trust services. 

Now, WKEY is adding NFTs to its WISeAuthentic blockchain infrastructure that will allow customers to create their own secure, unique digital assets. The WISeAuthentic platform uses a patented method to digitally certify physical objects, issuance of a storage device that includes an encrypted digital certificate of authenticity, and validating this certificate by a network of computers. 

WISeAuthentic Platform

In total, WKEY has more than 100 patents relating to the validation and maintenance of digital identities. With interest in NFTs exploding, it makes sense that WKEY is adding this feature to its suite of products given the fit. WKEY already secures millions of different objects such as luxury goods, wine, art, jewelry, collector’s items, and high-end watches on the blockchain. Now, it will be adding NFT applications which means that WISeAuthentic can be used to prove ownership of digital assets and tokenize physical assets. 

So far, NFTs are more of a novelty item for speculators or collectors, however, WKEY’s platform could potentially lead to the increased commercialization of the technology. Yet, there are skeptics. Many see NFTs as more like a bubble or a fad which will inevitably deflate when buyers lose interest.  Others are skeptical of WKEY given its rich valuation, and the proliferation of startups that are also working on the same problem. 

POWR Ratings

The POWR Ratings rate WKEY as a D which translates to a Sell. On average, D-rated stocks have an average annual performance of -2.3% which compares unfavorably to the S&P 500’s average annual return of 7.3%. 

WKEY’s sell rating is not surprising given that it’s a speculative stock with a considerable amount of risk. Although the company does have interesting products and potential, it’s valued at over $200 million with less than $20 million in revenue. The stock is also risky in that the ultimate fate of NFTs is uncertain.

Given the stock’s recent gains, it’s also not surprising that WKEY has a B for Momentum. It’s posted massive gains in the past week and remains a compelling, short-term vehicle to bet on the excitement behind NFTs continuing to increase.  

Is WISeKey Worth Buying?

Until this past week, WKEY’s stock has underperformed despite a very bullish environment for cybersecurity and blockchain stocks. Over the past year, while the Nasdaq is up 99.3% from its March lows, WKEY had a more modest 55% gain till its NFT-fueled spike.

Therefore, it’s fair to conclude that the fate of the NFT market will be a large determinant in whether WKEY is worth buying. 

We can gain some insights from the dot-com bubble and the previous crypto bull market. For one, these types of assets are capable of sensational moves in the short-term especially when investors become enamored with new technology. Second, investors can be correct about the technology’s long-term potential but still lose significant sums of money when markets inevitably correct, and the dominant sentiment goes from greed to fear.

Thus, I believe WKEY should be treated as a short-term trading vehicle to play the growth of the NFT market. NFTs are just starting to enter the mainstream, and the asset class’s spectacular gains could lure in more buyers. 

Additionally, the Fed’s recent decision to not hike rates until 2023 despite an improving economic outlook is also an indication that speculative action in markets will continue to build which is supportive of further gains in crypto and NFTs. Since WKEY is one of the few stocks with exposure to NFTs through its patents and platform, it will do well as long as the NFT market keeps strengthening.  

However, the long-term question is much more challenging. One obvious variable is the fate of the NFT market. If it proves to be more of a fad, then it’s likely that WKEY would be a poor investment as its patents and platform would be less valuable. The second and more difficult factor to assess is whether WKEY will emerge as a winner if the NFT market does keep growing. 

WKEY certainly has the first-mover advantage. The company has been around for 20 years with a focus on the digital identity ecosystem. However, there are several startups on the scene offering similar services. Therefore, investors should keep a close eye on WKEY to ensure that its platform keeps growing in terms of users and issued tokens.

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