Is MicroStrategy Stock a Buy Now? A Comprehensive Analysis

MicroStrategy Incorporated has been a focal point of discussion among investors and financial analysts alike, primarily due to its unconventional yet intriguing investment strategies. Founded in 1989 by Michael J. Saylor, MicroStrategy initially made its mark as a business intelligence (BI) software company, offering analytics and mobility solutions to enterprises worldwide. However, the company has recently garnered attention not for its software, but for its massive investments in Bitcoin. As of 2024, MicroStrategy claims to hold the largest Bitcoin reserves of any publicly traded company, a strategy that has significantly influenced its stock price. In this article, we will delve into the various facets of MicroStrategy’s business model, financial performance, and market perception to determine whether its stock is a viable investment option at this juncture.

The Motley Fool, a renowned financial services company, has provided a nuanced perspective on MicroStrategy’s recent performance. According to their analysis, MicroStrategy’s share price saw a staggering increase of over 100% in 2024. This surge can be attributed largely to the company’s aggressive Bitcoin acquisition strategy. However, it’s worth noting that while the stock price has soared, the core business of BI software has seen a decline in revenue. Specifically, sales dropped from $242.3 million to $226.7 million in the first half of 2024. This dichotomy between stock performance and business fundamentals raises questions about the sustainability of MicroStrategy’s current valuation.

One of the pivotal events for MicroStrategy in 2024 was its decision to execute a forward stock split. The split, which occurred in August, aimed to make individual shares more affordable without altering the company’s overall market value. While this move was well-received by retail investors, it did little to address the underlying issues in the company’s software business. Despite the stock split and the subsequent rise in share price, Wall Street analysts have maintained a cautious outlook. The median share-price target stands at $194, even though the company experienced a net loss of $102.6 million in the second quarter. This suggests that the market remains skeptical about the long-term viability of MicroStrategy’s dual focus on BI software and Bitcoin investments.

MicroStrategy’s transition to a subscription-based cloud computing model is another significant development worth examining. The company has been integrating artificial intelligence (AI) into its software platform, which has resulted in a 21% increase in subscription income in the second quarter. While this shift may lead to a decrease in total recognized revenue in the short term, it is expected to be offset by increases in subscription services revenue in the long run. This strategic pivot indicates that MicroStrategy is aware of the need to innovate and adapt its core business to stay competitive in the evolving tech landscape.

The technical summary data for MicroStrategy’s stock (MSTR) offers additional insights into its market performance. According to recent analyses, the stock is advised to be bought at $131.77 with a target price of $169.92. This recommendation is based on a combination of support and resistance levels, with $131.77 being the first level of support and $169.92 the first level of resistance. A break above $169.92 would signal a buy with an upside target of $214.61. Conversely, a test of $169.92 is seen as a short signal, suggesting that the stock may face downward pressure if it fails to break this resistance level. These technical indicators provide a framework for traders to make informed decisions, although they should be used in conjunction with fundamental analysis for a comprehensive investment strategy.

Market sentiment around MicroStrategy has also been shaped by the activities of financial giants and institutional investors. An analysis of the company’s options history revealed 145 unusual trades, with 44% of traders showing bullish tendencies and 40% bearish. Out of all the trades, 35 were puts and 110 were calls, valued at $2,123,015 and $14,926,000, respectively. These trades indicate that ‘whales’—large institutional investors—have been targeting a price range for MicroStrategy from $10.5 to $380 over the last three months. This wide range reflects the high volatility and speculative nature of MicroStrategy’s stock, driven largely by its Bitcoin holdings.

Canaccord Genuity, a leading financial services firm, has maintained a buy rating on MicroStrategy shares but lowered its price target from $185.00 to $173.00. This adjustment reflects changes in the performance of Bitcoin, which has seen a decrease of approximately 11%. Despite this, Canaccord Genuity’s valuation approach remains consistent, incorporating a projected 20% one-year appreciation for Bitcoin and a 15% rise in the value of the software business. The report also highlights a record high equity value premium of 110%, which could pose a risk to the company’s stock value. This nuanced assessment underscores the complexities involved in valuing a company like MicroStrategy, which straddles both the tech and cryptocurrency sectors.

Barclays has also weighed in on MicroStrategy’s prospects, increasing the price target to $173 from $146 while maintaining an overweight rating on the company’s shares. One of the key factors influencing this optimistic outlook is MicroStrategy’s recent move to un-encumber 70,000 bitcoins, effectively unlocking all of their holdings. This strategic decision allows MicroStrategy to be more aggressive in its Bitcoin acquisition strategy, further bolstering its reserves. Barclays believes that MicroStrategy is now well-equipped to take advantage of future opportunities in the Bitcoin market, which could potentially drive further growth in its stock price.

MicroStrategy’s strategic investment in Bitcoin has undeniably paid off in terms of stock price appreciation. Since 2020, the company’s stock has surged by an astonishing 1,200%, a testament to the market’s bullish sentiment towards Bitcoin. However, this strategy is not without its risks. MicroStrategy has taken on significant debt to fund its Bitcoin purchases, making its fortunes heavily tied to the performance of the cryptocurrency. Any substantial downturn in Bitcoin’s value could have a detrimental impact on MicroStrategy’s financial health, given the company’s leveraged position.

Despite the risks, some analysts see potential in MicroStrategy’s dual focus on BI software and Bitcoin. The company’s launch of an AI-powered analytics platform for government organizations is a step in the right direction, signaling its commitment to innovation in its core business. However, the decline in total revenues due to a shift in product licenses indicates that the company still has challenges to overcome. Investors are advised to keep a close watch on MicroStrategy’s actions in relation to both its software business and Bitcoin investments to gauge its long-term viability.

Trading options in MicroStrategy’s stock adds another layer of complexity. The recent options activity, with a mix of puts and calls, suggests that there is significant interest and liquidity in the stock. However, trading options comes with higher risks but also the potential for greater profits. Savvy traders mitigate these risks through education, strategic adjustments, and market awareness. Platforms like Benzinga Pro offer real-time alerts on MicroStrategy’s options trades, providing valuable insights for those looking to capitalize on market movements.

In conclusion, buying MicroStrategy stock is a high-risk investment that requires careful consideration. While the company’s aggressive Bitcoin acquisition strategy has led to substantial gains in its stock price, its core business fundamentals remain mediocre. The transition to a subscription-based cloud computing model and the integration of AI into its software platform are positive developments, but they have yet to translate into significant revenue growth. Investors should closely monitor the company’s financial performance, particularly its software business, and its balance sheet strength before making any investment decisions. Ultimately, MicroStrategy’s future success will depend on its ability to balance its dual focus on BI software and Bitcoin investments while navigating the inherent risks associated with such a strategy.