Enterprise software company MicroStrategy (MSTR) will be added to the tech-heavy Nasdaq-100 Index ($IUXX) next week, making its stock price volatile in the near term. The inclusion follows MicroStrategy’s solid performance, with the stock rallying over 450% year-to-date, easily crushing the broader market returns. Its massive exposure to Bitcoin (BTCUSD) increases the stock’s underlying volatility as it is viewed as a proxy to the world’s largest cryptocurrency.
For instance, in the last two days, Bitcoin prices have pulled back over 11%, dragging MSTR stock lower by 31% from all-time highs. However, MicroStrategy’s addition to the Nasdaq-100 Index will potentially attract billions of dollars from exchange-traded funds that track the widely traded index. Valued at a market capitalization of $66.16 billion, MicroStrategy is among the hottest stocks on Wall Street in 2024. Let’s see if MSTR stock remains a good long-term investment at current prices.
MicroStrategy Continues to Purchase Bitcoin
MicroStrategy first began holding Bitcoin on its balance sheet in mid-2020. During its third-quarter earnings call, MicroStrategy reported it held 252,220 BTC. Its average purchase price per BTC was $39,000. It added 25,889 BTC in Q3 and continues to accumulate the digital asset.
Recently, MicroStrategy founder and Chairman Michael Saylor announced the purchase of 15,350 BTC for $1.5 billion at an average price of $100,386. Its Bitcoin holdings currently total 439,000 worth $41 billion. So, MSTR stock trades at less than 2x its BTC reserve, which is lower than its peak valuation.
Bernstein analyst Gautam Chhugani emphasized that MicroStrategy's Bitcoin buying program is unmatched, making it the most significant corporate Bitcoin holder with 2% of the available supply. The stock's movement has closely tracked Bitcoin's performance, which recently reached all-time highs above $108,000.
Chhugani suggests that the Nasdaq-100 inclusion will enhance MicroStrategy's market liquidity, potentially supporting further expansion of its Bitcoin acquisition strategy.
What Is Next for MSTR Stock Investors?
MicroStrategy unveiled a new 21/21 plan that aims to raise $42 billion via debt and equity over the next two years to increase its BTC exposure further. It remains focused on being the first and largest Bitcoin treasury company and eventually use its massive hoard to create multiple financial products powered by the blockchain network.
MicroStrategy’s BTC strategy has allowed it to outperform most companies in the S&P 500 Index ($SPX). However, there are significant risks involved with investing in MSTR stock. First, its legacy revenue streams are declining as software sales fell by 10% year-over-year in the September quarter. Moreover, a growing Bitcoin balance, makes the stock vulnerable to small price swings.
MicroStrategy represents a unique investment opportunity, but it's not for the faint of heart. Its ambitious capital-raising plans are unprecedented, and the success of the strategy depends on continued market appetite for Bitcoin-linked securities. Over the years, it essentially became a leveraged Bitcoin bet with a software business attached.
Each of the eight analysts covering MicroStrategy stock recommends a “Strong Buy.” The average consensus target price for MSTR stock is $530.75, indicating upside potential of over 50% from current levels.
