MicroStrategy (MSTR)

MicroStrategy Incorporated, trading under the ticker MSTR, is a unique entity in the investment world. On the surface, it's an established American technology company that provides business intelligence (BI), mobile software, and cloud-based services. For years, it operated like any other B2B software firm, helping large organizations analyze their internal and external data to make smarter decisions. However, since 2020, the company has undergone a radical transformation under the leadership of its co-founder, Michael Saylor. It adopted a bold corporate strategy of converting its cash reserves, and then raising significant capital, to acquire and hold Bitcoin as its primary treasury reserve asset. This has effectively turned MicroStrategy into two things at once: an ongoing enterprise software business and, more famously, one of the world's largest public corporate holders of Bitcoin. Consequently, the company's stock price has become highly correlated with the price of Bitcoin, making it a fascinating and controversial case study for investors.

This is the “original” MicroStrategy. It develops software that allows corporations to sift through vast amounts of data, create analytical dashboards, and generate reports. Think of it as a set of powerful tools for company executives to track sales, monitor operations, and spot trends. This part of the business is mature and generates a steady, if not spectacular, stream of cash flow. In theory, this operational income provides a foundation for the company. However, in practice, the market's attention—and the stock's valuation—is almost entirely focused on the company's other, much larger, personality.

This is the side of MSTR that makes headlines. Beginning in August 2020, Michael Saylor directed the company to use its excess cash to buy Bitcoin. The stated rationale was to protect the company's capital from the devaluing effects of inflation and to adopt what he considers a superior store of value compared to fiat currency. What started with using existing cash quickly evolved. MicroStrategy began to aggressively issue debt, often in the form of convertible notes, and sell additional company stock to fund ever-larger Bitcoin purchases. This strategy effectively makes MSTR a leveraged bet on the future price of Bitcoin. The company uses borrowed money to increase its Bitcoin holdings, amplifying both potential gains and potential losses.

For followers of value investing, MSTR presents a thorny puzzle that challenges traditional valuation methods.

Many investors treat MSTR as a “Bitcoin proxy”—a way to gain exposure to Bitcoin's price movements within a standard brokerage account, without having to buy the cryptocurrency directly. Before the advent of spot Bitcoin ETFs, it was one of the most popular ways to do so. However, it's a proxy with crucial differences:

• Leverage: Unlike an ETF that simply holds the asset, MSTR uses debt to buy more Bitcoin. This leverage magnifies volatility. If Bitcoin's price soars, MSTR's stock can soar even higher. If Bitcoin crashes, the debt burden could become a serious problem.
• Operational Business: The software business, while small relative to the Bitcoin holdings, still exists. It generates cash but also has its own operational risks and costs.
• Management: You are not just betting on Bitcoin; you are betting on Michael Saylor's strategy and execution. This introduces a layer of management risk (or potential reward) not present in a passive ETF.

A key metric to watch is MSTR's stock price relative to the value of its Bitcoin holdings per share (its “digital Net Asset Value”). The stock often trades at a significant premium to this value, meaning investors are paying more for the shares than the underlying Bitcoin is worth. A value investor must ask: why pay $1.50 for $1.00 of an asset?

From a classic Benjamin Graham perspective, MSTR is a tough fit. Value investing traditionally seeks companies with predictable earnings and a significant margin of safety—buying a business for less than its intrinsic worth. MSTR's fortunes, however, are tied to the wildly unpredictable price of a single, highly volatile asset. Valuing the underlying software business is almost a moot point when its market capitalization is driven by billions of dollars in Bitcoin. The immense leverage employed is the antithesis of the conservative capital structures favored by most value investors. A severe and prolonged “crypto winter” could jeopardize the company's solvency, erasing the margin of safety entirely. While some may argue that holding Bitcoin itself is a value play on a future monetary network, investing in a leveraged corporate vehicle like MSTR is undoubtedly a speculative endeavor.

When looking at MicroStrategy, it's essential to understand what you are actually buying.

1. It's a Bitcoin Bet: First and foremost, an investment in MSTR is a highly leveraged bet on the future price of Bitcoin. The performance of its software business is, for now, a secondary factor in its stock price.
2. Mind the Premium: Always check if MSTR is trading at a premium or discount to the market value of its Bitcoin holdings. A large premium means you're paying extra for the structure, leverage, and management, which may or may not be justified.
3. High Risk, High Reward: The use of debt makes MSTR far riskier than holding Bitcoin directly. It is a vehicle for speculation, not a cornerstone for a conservative value-oriented portfolio. It's built for those with a strong conviction in Bitcoin's future and a high tolerance for volatility.