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By Tomi Kilgore

Mizuho analyst Dan Dolev sees more than 50% upside in MicroStrategy's stock, while saying the software business is 'nearly inconsequential'

Shares of MicroStrategy Inc. rose Wednesday toward their first gain in seven days after a fresh bullish call from an analyst who focused almost solely on the company's bitcoin strategy.

MicroStrategy (MSTR) is still technically a business software company: It is included in the iShares Expanded Tech-Software Sector exchange-traded fund IGV and the Nasdaq 100 Index NDX, which includes the largest nonfinancial companies.

But Mizuho analyst Dan Dolev, who covers financial-technology companies like PayPal Holdings Inc. (PYPL) and Block Inc. (XYZ), as well as financial-services companies such as Coinbase Global Inc. (COIN) and Robinhood Markets Inc. (HOOD), now covers the company.

He initiated coverage of MicroStrategy's stock with an outperform rating and a $515 price target, which implies about 53% upside from current levels.

"By itself, bitcoin has no intrinsic value," Dolev wrote in a note to clients. "However, growing global enthusiasm surrounding the finite number of bitcoins and a more favorable political environment under President [Donald] Trump are likely sufficient catalysts for potential price appreciation."

MicroStrategy's stock rose 0.5% in morning trading. It had tumbled 15.3% amid a six-day losing streak through Tuesday, which was the longest such streak since the seven-session stretch that ended Jan. 16, 2024.

Regarding the software business, Dolev said it is "a nearly inconsequential portion" of the company's value.

Based on the relative valuations of the company's software revenue, Dolev values that business at about $750 million, which amounts to 0.8% of the company's market capitalization of $88.4 billion at Tuesday's close.

The rest of the company's valuation is about its bitcoin holdings - which would be worth about $48 billion at current prices (BTCUSD) (BTCUSD) - and the expectation that bitcoin adoption will continue to grow.

"Assuming adoption growth continues on a similar trajectory through 2027 implies 25%-30% annual bitcoin price appreciation," Dolev wrote.

That bodes well for MicroStrategy's stock, which has a high correlation with bitcoin prices, given the company's ability to access debt and equity markets to raise money to buy bitcoin.

Over the past two years, the correlation coefficient between the stock and bitcoin was 0.95, where 1.00 would mean they are exactly in sync, while the correlation between the stock and the iShares software ETF was 0.88.

And the company announced a plan in late October to raise up to $42 billion through debt and stock sales to buy more bitcoin. Between then and Jan. 26, the company spent $20.5 billion to buy 218,887 bitcoins.

There may be some concern among investors, given that the bulk of those purchases were made following dilutive issuances and sales of new common stock.

Dolev said investors shouldn't worry about that.

"The market has placed a premium on [MicroStrategy's] ability to increase its bitcoin per share, which has allowed it to issue convertible bonds and equity at a valuation that results in immediate accretion in bitcoin per diluted share," Dolev wrote. "In other words, the premium has allowed [MicroStrategy] to grow its bitcoin holdings at a faster rate than its share dilution from capital markets activities."

Of the 13 analysts surveyed by FactSet who cover MicroStrategy, 12 are bullish and the other is bearish. The average price target of all the analysts is currently $549.36, which is 63% above current prices.

MicroStrategy's stock has blasted 557.2% higher over the past 12 months, while bitcoin has soared 135.5%. Meanwhile, the iShares software ETF has gained 19.7% and the S&P 500 index SPX has advanced 22.7%.

-Tomi Kilgore

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