MicroStrategy (MSTR) Stock Plummets as Bitcoin Falls, Analysts Slash Price Targets But Maintain ‘Buy’ Rating

As the cryptocurrency market navigates a challenging period, MicroStrategy (NASDAQ: MSTR), the publicly traded company with the largest Bitcoin holdings, has not been immune to the downturn. Its stock experienced another sharp decline on Wednesday, hitting an intraday low of $121.19. This significant drop has prompted financial analysts to adopt a more cautious stance, leading to substantial revisions in their price targets for the software firm turned Bitcoin proxy.

In a research note released Wednesday, Joseph Vafi, a seasoned analyst at Canadian investment bank Canaccord Genuity, and a long-standing “staunch bull” on MicroStrategy, dramatically reduced his price target for MSTR. The target was slashed by a striking 61%, from $474 down to $185. Intriguingly, despite this drastic cut, Vafi maintained his “Buy” investment rating for MicroStrategy, signaling a nuanced perspective on the company’s long-term prospects.

Bitcoin’s Retreat and MSTR’s Corresponding Fall

Earlier today (the 5th), Bitcoin briefly dipped near the $70,000 mark, reaching its lowest point since October 2024. This crypto market tremor directly impacted MicroStrategy, whose shares plummeted approximately 9% on Wednesday to $121.19. The stock has now seen a 15% year-to-date decline and a staggering 72% crash from its all-time high recorded in November 2024.

Joseph Vafi’s analysis highlighted a critical shift in Bitcoin’s market behavior. While historically championed as a long-term store of value, akin to “digital gold,” its recent price action increasingly mirrors that of high-risk assets, particularly tech stocks. Vafi pointed out that in the face of escalating geopolitical tensions and a volatile macroeconomic landscape, traditional safe-haven assets like gold have surged. Bitcoin, however, has failed to capitalize on this trend, struggling to keep pace with assets typically sought during times of uncertainty.

He further elaborated that the flash crash experienced in the cryptocurrency market last October, which triggered widespread forced liquidations, continues to send ripple effects. This ongoing market pressure, Vafi suggests, underscores Bitcoin’s persistent reliance on broader market liquidity rather than its perceived role as a hedge against economic instability.

A Contrarian “Buy”: Unpacking the Analyst’s Stance

The decision to maintain a “Buy” rating amidst such a significant price target revision might seem counterintuitive. It’s particularly noteworthy given that Vafi had only just upgraded MicroStrategy’s target price to $474 in November of last year. Nevertheless, his new target of $185 still implies a substantial upside potential of over 40% from the previous day’s closing price of $129.09.

Vafi’s updated valuation is predicated on two key assumptions: first, a modest rebound of approximately 20% in Bitcoin’s price from its current lows; and second, a recovery in MicroStrategy’s net asset value multiple (mNAV) to around 1.25 times.

MicroStrategy’s Built-in Resilience and “Bitcoinization”

The Canaccord Genuity report also underscored MicroStrategy’s robust financial architecture, which is specifically designed to withstand high levels of market volatility. The company currently holds over $44 billion worth of Bitcoin assets, balanced against approximately $8 billion in convertible bonds. This includes a $1 billion bond puttable in 2027, which remains “in-the-money,” providing a degree of financial flexibility.

Regarding preferred stock dividend payments, Joseph Vafi expressed confidence that even with a noticeable narrowing of MicroStrategy’s mNAV premium, the company possesses adequate mechanisms to manage these obligations, primarily through minor share issuances. He concluded that these payments do not pose a structural risk in the short term.

As MicroStrategy prepares to release its quarterly earnings report this week, Vafi noted that the traditional financial metrics typically scrutinized by investors have significantly diminished in importance. This shift is a direct consequence of the company’s near-complete “Bitcoinization.” The market’s primary focus, therefore, will be on the substantial unrealized losses incurred due to Bitcoin’s recent decline, reflecting MicroStrategy’s deep integration with the volatile cryptocurrency.