Three Consecutive Losses in Financial Reports, Stock Price Surges Beyond Nvidia—Can MSTR, the "Bitcoin Proxy," Continue to Soar?

By Ye Zhen

Summary

MicroStrategy's core business is underperforming, but its Bitcoin side venture has become highly profitable. The company plans to raise $42 billion over the next three years to continue buying Bitcoin. After surging 1,700% since 2022, some analysts have expressed concerns about the stock’s premium of up to 200%, while others anticipate that new accounting standards next year will allow the company’s Bitcoin holdings to be valued at market price, potentially turning MicroStrategy’s losses into profits.

As the largest "Bitcoin proxy" in U.S. equities, MicroStrategy’s core business has delivered mediocre results, yet its share price is closely tied to Bitcoin’s performance. Over the past two years, its gains have outpaced even top-performing stocks like Nvidia. However, analysts are divided on its future outlook.

On October 30, MicroStrategy reported its latest earnings: software revenue fell 10% year-on-year to $116.1 million, below the $122.5 million expected by analysts; net loss widened to $340 million—the third consecutive quarterly loss and a significant increase from the $140 million loss in the same period last year.

The main reason for the loss was a $412 million impairment charge on its approximately $18 billion Bitcoin inventory. That night, MicroStrategy announced plans to raise $42 billion over the next three years to purchase more Bitcoin.

Despite weak fundamentals, the stock remains one of the strongest performers in the U.S. market. Since 2022, MicroStrategy’s shares have surged 1,700%, compared to Nvidia’s gain of around 870%. Among large-cap U.S. stocks, only Carvana Co., the used car sales platform whose shares soared over 4,300% after bankruptcy fears subsided, has performed better.

MicroStrategy’s gains have even outpaced Bitcoin itself. Year-to-date, MicroStrategy rose as much as 300%, exceeding Bitcoin’s appreciation of about 70%.

This is largely due to the leveraged investment strategy of its co-founder and chairman, Michael Saylor: borrowing funds via convertible notes at interest rates around 1% to buy Bitcoin, which has seen a compound annual growth rate of approximately 50% over the past four years.

With the core business lagging but the Bitcoin sideline delivering outsized returns, does MicroStrategy still have room to grow after such a sharp rally?

On one hand, some analysts argue the current stock price already reflects an excessive premium over asset value and may not rise further. On the other hand, others believe upcoming changes in accounting rules next year—allowing Bitcoin holdings to be marked-to-market—could turn MicroStrategy’s losses into profits, making the stock still worthy of a “buy” rating.

Leveraged Bitcoin Purchases to Continue for Three More Years

In August 2020, shortly after the pandemic outbreak, MicroStrategy decided to invest in Bitcoin as an inflation hedge. This decision transformed the previously obscure enterprise software maker into the world’s best-known “Bitcoin proxy.”

Over the past four years, MicroStrategy has issued around 40 Bitcoin purchase announcements and now holds approximately $18 billion worth of Bitcoin, making it the publicly traded U.S. company with the largest Bitcoin holdings.

Initially using cash flow, MicroStrategy later began leveraging tools such as convertible notes to raise capital and amplify its Bitcoin purchases, and plans to explore additional financing methods to acquire more Bitcoin.

Saylor said at a public event this month: “We’re essentially creating leverage by tapping into the convertible bond market… Over time, we’ll explore the fixed-income markets and consider issuing preferred stock—a kind of swap, essentially.”

MicroStrategy has already unveiled its purchasing roadmap for the coming years. Shortly after reporting losses, the company announced plans to raise $42 billion over the next three years—$21 billion in equity and $21 billion in fixed-income securities—to buy more Bitcoin.

President and CEO Phong Le stated in a press release:

“Our focus remains on increasing shareholder value creation through the digital transformation of capital… As a Bitcoin financial firm, we plan to use additional capital to purchase more Bitcoin as a treasury reserve asset.”

Stock Trades at 200% Premium, But May Turn Profitable Next Year

Regarding MicroStrategy’s stock valuation, some analysts have voiced concerns over the extremely high premium, while others look forward to potential benefits from upcoming changes in accounting standards.

Currently, MicroStrategy’s stock trades at over a 200% premium to its asset value. Given declining revenues and constrained cash flow, Lance Vitanza, head of equity research at TD Cowen, believes the stock’s surge will halt.

Vitanza maintains a “buy” rating on MicroStrategy but expects the share price to stabilize between $200 and $215.

On the other hand, new accounting rules set to take effect next year could transform MicroStrategy from a loss-making company into a profitable one. Currently, Bitcoin assets are carried on MicroStrategy’s books at just $6 billion—less than one-third of their current market value. Revaluing these holdings at market prices would generate substantial income for the company.

According to analyst estimates compiled by Bloomberg, the new accounting rules could bring MicroStrategy around $2 billion in net profit next year, a stark contrast to the projected $20 million loss this year.

Mark Palmer, managing director at Benchmark Co., said: “The company would go almost overnight from negative to positive earnings—not only improving its image, but also potentially qualifying for inclusion in indices that require positive earnings.” Palmer maintains a “buy” rating on MicroStrategy.