Enterprise software giant MicroStrategy (MSTR) is set to join the tech-heavy Nasdaq-100 Index next week, marking a significant milestone for the company and potentially adding volatility to its stock in the short term. With its stock soaring more than 450% year-to-date, MicroStrategy has outperformed the broader market, largely due to its massive exposure to Bitcoin (BTC). As a proxy for the world largest cryptocurrency, the company stock has shown strong correlation with Bitcoin price movements, which adds both risk and reward for investors.
For instance, Bitcoin recent pullback of over 11% has dragged MicroStrategy stock down by 31% from its all-time highs. Yet, despite these fluctuations, the company inclusion in the Nasdaq-100 Index is poised to attract billions of dollars from exchange-traded funds (ETFs) tracking the index, which could provide significant support for its stock price in the near future. With a market capitalization of $66.16 billion, MicroStrategy is one of the hottest stocks on Wall Street as we enter 2024. But the question remains: will MSTR continue to be a strong long-term investment at current levels?
MicroStrategy’s Bitcoin Strategy Continues to Impress
MicroStrategy first began accumulating Bitcoin in mid-2020, and its holdings have grown substantially since then. As of its most recent quarterly earnings report, the company holds 252,220 BTC, with an average purchase price of $39,000. In the third quarter alone, MicroStrategy added 25,889 BTC to its holdings, demonstrating its ongoing commitment to expanding its Bitcoin portfolio.
More recently, Chairman and Founder Michael Saylor announced that MicroStrategy purchased 15,350 BTC for $1.5 billion at an average price of $100,386. With its total Bitcoin holdings now valued at $41 billion, the company has become the largest corporate holder of Bitcoin, accounting for roughly 2% of the total circulating supply. Notably, MicroStrategy’s stock has moved in close alignment with Bitcoin price performance, which recently surged to new all-time highs above $108,000.
Nasdaq-100 Inclusion to Boost Market Liquidity
Analyst Gautam Chhugani from Bernstein highlighted that MicroStrategy Bitcoin acquisition program is unparalleled, giving the company a unique edge as it continues to grow its Bitcoin reserves. The addition of MicroStrategy to the Nasdaq-100 Index will likely enhance the stock market liquidity, further supporting its Bitcoin buying strategy. As more investors gain exposure to the stock through passive funds that track the Nasdaq-100, the company’s market presence is expected to strengthen.
What’s Next for MSTR Stock?
MicroStrategy is not slowing down in its pursuit of expanding its Bitcoin holdings. The company recently introduced its 21/21 plan, which aims to raise $42 billion over the next two years through debt and equity to fund its Bitcoin purchases. MicroStrategy long-term goal is to become the largest Bitcoin treasury in the world, using its growing reserves to create financial products powered by blockchain technology.
However, investing in MSTR stock is not without its risks. While the company has outperformed most S&P 500 stocks, its legacy software business is facing declining revenues, with a 10% year-over-year drop in software sales for the September quarter. Additionally, the increasing size of its Bitcoin reserves makes the stock particularly sensitive to Bitcoin price swings.
A Unique and High-Risk Investment Opportunity
MicroStrategy represents a one-of-a-kind investment opportunity, though it comes with a high level of risk. Its strategy, centered around Bitcoin, has made it a leveraged bet on the cryptocurrency market with a software business attached. Success in the future will depend largely on market demand for Bitcoin-related securities.
Despite the risks, analysts are bullish on MicroStrategy’s prospects, with all eight analysts covering the stock recommending a “Strong Buy.” The average target price for MSTR is $530.75, which suggests potential upside of more than 50% from current levels.
As the company continues to raise capital and expand its Bitcoin holdings, investors will be watching closely to see if MicroStrategy can maintain its momentum and further cement its status as a dominant player in the Bitcoin market.
