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Introduction
MicroStrategy (NASDAQ: MSTR) is often associated with Bitcoin and is called by some as the next Gamestop for its rise in stock price of approximately 359% this year. However, what exactly does this company do, and why has its stock price soared? This article is part of a series exploring companies whose stocks attract significant market attention, focusing on what they do and the unique strategies that have captured market attention. The goal is not to make investment recommendations but to deliver insights into industries and market trends for Vanderbilt students.
MicroStrategy’s Origins and Core Product
As per its founder, Michael J. Saylor, MicroStrategy is a Bitcoin treasury company, managing digital assets rather than traditional ones. It stands out as the largest corporate holder of Bitcoin, a strategy that has played a pivotal role in its stock’s 359% growth in 2024 despite its underwhelming Q3 earnings.
Interestingly, the company’s Bitcoin-centric identity is a relatively recent pivot. Michael Saylor, an MIT grad who worked for DuPont as an internal consultant, founded MicroStrategy in 1989 with his fraternity brother Sanju Bansal. The company began developing software for data mining, then shifted to focusing on software for business intelligence, pioneering an approach called relational online analytical processing (ROLAP).
ROLAP laid the foundation for MicroStrategy’s flagship product: an AI-driven business intelligence platform. This software enables organizations to analyze vast datasets—like customer purchasing trends—to inform data-driven decision-making. For example, Hilton’s managers could identify peak room booking days, weeks, and months with the help of this software and uncover deeper insights into customer behavior. Additionally, Hilton now knows the typical time windows when guests are out of their rooms, which allows them to adjust housekeeping schedules, minimizing disruptions. It also informs how Hilton prices and prepares its services, leading to a smoother guest experience.
Despite the innovation of its AI-powered software, this part of the business has not been generating revenue that could explain its stock surge. The company’s rise in the stock market is primarily tied to Michael Saylor’s bold bet on Bitcoin’s future value. Since 2020, MicroStrategy has been purchasing bitcoins and owns 447,470 bitcoins total as of Jan. 6, 2025, at an average price of $58,219 each, totaling $23.41 billion in cost. Why do investors choose to buy stocks tied to Bitcoin’s value instead of buying Bitcoin directly? The reason is that MicroStrategy’s stock can offer leveraged returns on bitcoin, attracting investors seeking high risk, high reward exposure. It is also more accessible to buy stocks like this than purchasing bitcoin.
With its software business underperforming and the company carrying significant debt, how has MicroStrategy acquired the funds needed to purchase bitcoins, and how has its stock achieved such remarkable gains? The answer lies in its unique financial strategy that integrates Bitcoin acquisition with innovative financing methods like convertible notes.
Financing Strategies: Convertible Notes
On November 20, 2024, MicroStrategy announced the issuance of $2.6 billion in 0% convertible senior notes due in 2029. These notes are loans that offer no regular interest payments and allow lenders to convert the debt into company stock if certain conditions are met. In this case, the conversion price is $672.40, which is 55% higher than the stock’s market price of $433.80 at the time of issuance. If the stock surpasses that price by 2029, lenders can profit by converting at a discount. If not, MicroStrategy simply repays the debt, with no interest due until maturity. This encourages large investors who see potential in Bitcoin to provide funds for MicroStrategy, who then use them to purchase more bitcoin. MicroStrategy has also turned to selling preferred stock for additional capital, including a recent plan to raise $2 billion to fund further bitcoin purchases.
If the notes are converted to shares, MicroStrategy will have to issue new shares, so the total number of shares for MSTR will increase. Typically, issuing new shares or debt dilutes existing shareholder equity, which can reduce stock value.
However, MicroStrategy uses its bitcoin-to-share ratio to counter this effect. When MicroStrategy issues convertible notes, it does not immediately dilute its existing shareholders because no new shares are issued right away. This allows MicroStrategy to buy significant amounts of bitcoin before potentially negatively impacting its bitcoin-to-share ratio. Upon conversion, the number of shares increases (dilution happens), but by then, the value of the Bitcoin holdings per share is likely higher, offsetting the impact of dilution. So as long as the number of bitcoins tied to each share does not drop, the equity of the shareholders are not diluted.
The NAV Premium and Leverage Effect
The last and also crucial part to MicroStrategy’s stock rise goes back to its strong tie established with the value of Bitcoin that Saylor planned through acquiring bitcoins. This move aligns its stock value closely with Bitcoin’s performance, creating a “NAV premium,” in stock price, which is when the stock is trading at a price higher than its calculated Net Asset Value (NAV) (in this case, value of total number of bitcoin MicroStrategy owns). There is a NAV premium because the market assigns additional value beyond the intrinsic worth of its Bitcoin holdings, due to investors believing in the growth potential of bitcoin or trying to achieve amplified returns compared to directly holding Bitcoin. With Bitcoin having achieved a near 200% rise in 2024, the 359% growth in MSTR reflects the multiplier effect created by the “NAV premium.” MicroStrategy’s stock gains outpace Bitcoin’s own price increases, but carry corresponding risks if prices fall. Investors see this as a leveraged way to capitalize on Bitcoin’s growth.
The Critics: Is MicroStrategy’s Approach Sustainable?
Despite its success, the strategy of MicroStrategy is constantly questioned, with the company’s play being called by some analysts as an unsustainable “Ponzi scheme.” Jacob King, a contributor with Whalewire, said MicroStrategy’s model is a risky feedback loop—the company issues equity or debt to purchase bitcoin, raising the price of bitcoin, therefore increasing MicroStrategy’s market capitalization as a result; MicroStrategy could then raise more capital for further acquisitions of bitcoin. According to King, since the key driving factor is a rising price of Bitcoin, this system will collapse if Bitcoin stagnates or collapses.
Conclusion: Why MicroStrategy Has Captured Market Attention
Ultimately, MicroStrategy’s rise is driven by investors’ optimism about Bitcoin’s potential growth. With the company’s primary asset being a large amount of bitcoin, MicroStrategy has effectively linked its stock to the value of Bitcoin, creating the bitcoin-to-share ratio. By issuing convertible notes, it attracts large institutional investors, providing the capital needed to purchase even more bitcoin.
Additionally, its stock often trades at a premium to the net value of its Bitcoin holdings, which amplifies both the potential returns and the risks compared to directly investing in Bitcoin. This combination of strategic bitcoin accumulation, leverage through convertible notes, and the NAV premium has created significant demand for MicroStrategy’s stock, ultimately driving up its price.
