MicroStrategy (MSTR) bears are in for a painful short squeeze next year

MicroStrategy (MSTR) is about to make short sellers wish they had stayed in cash. This software company turned Bitcoin whale looks posied to be a problem for the bears betting against it.

With over 444,000 bitcoins in its arsenal right now, MicroStrategy owns more Bitcoin than any other corporation in the world.

President-elect Donald Trump’s pro-crypto policies are fueling a meteoric rise for the industry. He is expected to flip the script on regulation and set up a strategic national Bitcoin reserve.

But what’s really about to light up is MicroStrategy, just as it joins the Nasdaq-100. This will force institutional investors to buy MSTR, adding nearly $11 million in retail capital to the pot. The result? A potential short squeeze that could send the stock price into orbit.

MicroStrategy’s numbers: A high-stakes gamble with Bitcoin

MicroStrategy has gone all in, staking its future on Bitcoin’s success. The company’s 2024 has been insane—its stock is up 440% over the past year and 123% in just three months. For context, that’s more than triple the performance of Bitcoin itself.

In Q3, MicroStrategy reported $116.1 million in revenue, a 10.3% drop from the previous year. That’s not great, but let’s be real—nobody cares about the software business anymore. What matters is Bitcoin. By the end of October, the company’s stash had grown to 252,220 bitcoins, valued at $9.9 billion.

This is the core of its strategy: buy Bitcoin, hold it, and wait for the price to explode. To fund this, MicroStrategy sold 8 million Class A shares for $1.1 billion and doubled its long-term debt to $4.3 billion.

The company’s “21/21 Plan” is as ambitious as it sounds. MicroStrategy wants to raise $42 billion, split between equity and debt, to buy even more Bitcoin. If you think that’s excessive, you’re not wrong. But the market seems to love it.

Gautam Chhugani from Bernstein raised his price target for MSTR to $600, calling the company’s Bitcoin strategy “unprecedented.” TD Cowen followed with a target of $525. Benchmark has the most bullish target at $650, nearly double the current price.

Risks and rewards: The Bitcoin rollercoaster

MicroStrategy’s bet on Bitcoin has paid off so far, but it’s not without risks. The company’s operating expenses soared by 300% in Q3 to $514.3 million, thanks to impairment losses on its digital assets. Its cash balance is just $46.3 million—a tiny cushion for a company this leveraged.

And while the $3 billion convertible bond issuance at a 0% coupon provided interest-free capital, it’s a double-edged sword. If the stock price falls, MicroStrategy could be forced to raise more money to repay debt, creating a potential liquidity crisis.

Yet, this hasn’t stopped CEO Michael Saylor from doubling down. MicroStrategy is banking on Bitcoin hitting $1 million by 2033. Analysts seem to think this is more than a pipe dream.

Chhugani predicts MicroStrategy could own 4% of Bitcoin’s total supply by 2033. TD Cowen estimates the company’s holdings will reach $108 billion by 2027.

As of press time though, short interest in MicroStrategy is climbing. Bears are betting the company’s focus on Bitcoin will backfire, but they’re playing with fire.

When institutional money starts pouring in after Christmas, those shorts will be forced to cover, driving the stock price even higher. Analysts are calling this a perfect setup for a short squeeze, and they’re probably right.

MicroStrategy’s current valuation is steep—157.65 times forward sales, to be exact. That’s higher than Coinbase and Block, two giants in the crypto industry. But investors don’t seem to care.

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