Strategy Incorporated (MSTR): A Bear Case Theory

We came across a bearish thesis on Strategy Incorporated (MSTR) on Substack by Charly AI. In this article, we will summarize the bears’ thesis on MSTR. Strategy Incorporated (MSTR)'s share was trading at $381.60 as of May 1^st.

MicroStrategy (MSTR) functions less like a conventional software company and more like a leveraged Bitcoin proxy, with its entire investment thesis resting on the performance of the cryptocurrency. The company’s core software operations continue to deteriorate, as evidenced by a 6.6% year-over-year revenue decline and compressing profitability driven by rising costs and a pivot toward lower-margin subscription services. At the same time, MicroStrategy has aggressively accumulated Bitcoin using a mix of shareholder dilution and $7.2 billion in long-term debt, leaving its balance sheet highly leveraged and its liquidity position precarious—with only $38 million in cash and negative free cash flow of $53 million in 2024. Despite a rally in Bitcoin that has lifted the stock price, MicroStrategy’s fundamentals remain deeply concerning, especially given its 4.98x price-to-book valuation, which appears unsupportable in the absence of sustainable earnings. With $1.79 billion in impairment losses and a capital structure heavily exposed to interest rates and crypto volatility, the company’s financial health is fragile.

For investors bullish on Bitcoin, MicroStrategy offers asymmetric upside, but this comes at the cost of extreme volatility and significant downside risk. The company is essentially a high-beta bet on Bitcoin with little intrinsic business value to fall back on if the crypto market turns. While recent changes in accounting rules may reduce volatility in reported earnings, they do not address the structural weaknesses in MicroStrategy’s business model or balance sheet. Regulatory uncertainty, the burden of servicing high-interest debt, and a fading software division further compound the risks. As a result, MicroStrategy is best avoided by most investors and suitable only for those who understand the speculative, binary nature of its investment case. With its overvaluation and deteriorating fundamentals, the stock merits a clear SELL recommendation.

Strategy Incorporated (MSTR) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 44 hedge fund portfolios held MSTR at the end of the fourth quarter which was 25 in the previous quarter. While we acknowledge the risk and potential of MSTR as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.