Bitcoin (BTCUSD) has had an incredible 2024, surging 110% on a year-to-date basis, outpacing the S&P 500 Index ($SPX) and the Nasdaq Composite Index ($NASX). This rally is fueled by President-elect Donald Trump's support for crypto, his plans to build a strategic BTC reserve, and his nomination of cryptocurrency advocate Paul Atkins to head the SEC. A more crypto-friendly regulatory landscape and the launch of Bitcoin ETF options further boosted confidence. The surge to over $100,000 marks a key milestone, cementing Bitcoin’s place in the financial world. However, its notorious volatility remains a risk.
Amid this surge, software firm MicroStrategy (MSTR) has continued its transformation into a Bitcoin-acquiring powerhouse and is now the largest corporate holder of the digital currency. MicroStrategy owns 439,002 bitcoins as of Dec. 16, 2024.
Meanwhile, short interest in crypto stocks is rising sharply, and many speculate that MSTR is primed for a short squeeze. Analysts predict the short squeeze could further drive a rally, as short sellers may be forced to exit their bearish positions, opening the door for substantial upside for investors.
Additionally, as MicroStrategy joins the Nasdaq-100 on Dec. 23, 2024, it triggers a mandatory capital inflow from large investors. This move, attracting nearly $11 million in retail investor inflows, strengthens the case for MSTR's potential growth - catching short sellers off guard and triggering a squeeze.
About MicroStrategy Stock
Virginia-based MicroStrategy Incorporated (MSTR), founded in 1989, offers AI-powered analytics software and cloud solutions for businesses and governments worldwide. Known for its MicroStrategy ONE platform and Bitcoin holdings, the company serves diverse industries, including finance, healthcare, and government.
MicroStrategy has been on a tear in 2024, emerging as one of the year's biggest winners. Once a software company, it is now a hybrid tech-investment powerhouse, with Bitcoin as its backbone. As the largest corporate holder of Bitcoin, MSTR has skyrocketed 440% over the past 52 weeks, with a blistering 123% surge in just the past three months. Investors have embraced the pivot, fueling the stock's meteoric rise.
From a valuation standpoint, MSTR stock is priced at 157.65 times forward sales, a premium to cryptocurrency exchange Coinbase Global, Inc. (COIN) and payment services company Block, Inc. (SQ).
MicroStrategy's Q3 Performance
MicroStrategy's Q3 earnings on Oct. 30 painted a mixed picture. Revenue fell 10.3% year over year to $116.1 million, while its net loss widened to $1.72 per share, missing estimates. Subscription services revenue rose 32.5% to $27.8 million, but product licenses and support revenues declined. The company’s struggle with profitability continues, highlighting challenges in balancing growth and operational efficiency. Operating expenses skyrocketed 300% to $514.3 million, largely due to impairment losses on digital assets, leaving the company with a cash balance of $46.3 million.
The highlight of Q3 was MicroStrategy’s Bitcoin holdings, which grew to 252,220 BTC within the quarter, valued at $9.9 billion as of Oct. 29. Despite this, investors remain wary about the company’s funding sources. To fuel its Bitcoin acquisition spree, MicroStrategy sold 8 million Class A shares, raising $1.1 billion, and doubled its net long-term debt to $4.3 billion. This aligns with its ambitious "21/21 Plan," which aims to raise $21 billion in equity and debt each to further bolster its Bitcoin reserves.
MicroStrategy’s Bitcoin-focused strategy has been a double-edged sword. On one hand, it has catapulted the company’s stock performance, securing its spot in the Nasdaq-100 and benefiting from tax advantages tied to Bitcoin impairments. Its $3 billion convertible bond issuance at a 0% coupon provided interest-free capital for additional Bitcoin purchases, further leveraging its position. However, the heavy concentration in a single volatile asset poses significant risks. A steep Bitcoin price decline could derail its strategy, strain its liquidity, and undermine stock performance.
The company’s transformation from a software firm to a “Bitcoin Treasury Company” underscores its commitment to this singular path. However, sidelining its core software business amplifies its reliance on Bitcoin’s price trajectory. The use of convertible debt also introduces risks; falling stock prices could force MicroStrategy to raise capital to repay debt principal, creating potential liquidity challenges.
Despite the bold vision of raising $42 billion to expand its Bitcoin holdings, this leveraged approach leaves MicroStrategy navigating a precarious balance between potential gains and significant concentration risks.
What Do Analysts Expect for MicroStrategy Stock?
In November, Bernstein’s Gautam Chhugani boosted his MSTR price target to $600 from $290, giving an "Outperform" rating, citing the company's "unprecedented" Bitcoin strategy. With a triple-digit rally this year, Chhugani sees more upside ahead, projecting that MSTR could own 4% of Bitcoin's supply by 2033, with Bitcoin anticipated by the analyst to hit $1 million by 2033.
Chhugani reiterated his target price and rating in December.
Meanwhile, TD Cowen raised MSTR’s price target to $525 from $392, keeping a "Buy" rating. The move follows the company’s $2.5 billion equity raise, fresh off a successful $3 billion convertible bond issuance. All funds are being funneled into Bitcoin purchases. The brokerage firm now models MicroStrategy’s bitcoin holdings to hit $108 billion by fiscal 2027, a figure it says could prove conservative. The market’s backing of the company’s strategy solidifies its ability to raise capital and boost shareholder value.
Analysts appear highly optimistic on MSTR. The stock has a unanimous “Strong Buy” rating from the eight analysts in coverage, with the mean price target of $530.75 indicating upside potential of about 60%. Plus, the Street-high target of $650, set by Benchmark, implies the stock could rally as much as 96%.
