Cowen Defends Strategy Inc's Exorbitant Bitcoin Price Differential
In a recent analysis, TD Cowen has argued that Strategy's stock should trade at a premium over its Bitcoin holdings, rather than just the same value as those holdings. This premium, according to the analysts, is justified by Strategy's operational strategy and growth potential beyond just holding Bitcoin as a reserve asset.
Strategy's Active Bitcoin Acquisition Strategy
Strategy, formerly MicroStrategy, is not simply a passive Bitcoin holder. While it is the world’s largest corporate owner of Bitcoin, TD Cowen highlights that the company has evolved from a defensive position—holding Bitcoin to protect asset value—to an opportunistic strategy aimed at accelerating shareholder value creation through active acquisition of Bitcoin funded by debt and equity issuance.
Forecasted Bitcoin Price Increase and Growth Potential
TD Cowen forecasts a significant increase in Bitcoin prices, with a base case of $128,000 and an upside of $155,000 per BTC by the end of 2025. Given this, Strategy’s stock price is expected to be heavily influenced by the Bitcoin price, but also by the company's ability to efficiently increase its Bitcoin holdings, which could further enhance shareholder returns.
Potential Increase in Bitcoin Holdings
The firm expects Strategy to raise additional capital—around $84 billion via a mix of debt and equity—to potentially increase Bitcoin holdings to 900,000 BTC by 2027, implying substantial growth in its asset base and thus intrinsic value beyond current Bitcoin reserves.
Valuation Beyond Net Asset Value
TD Cowen values Strategy's equity not merely as the net asset value (NAV) of Bitcoin held but including the market premium from its business model, investor base, and growth prospects. This has led the stock to trade at a premium over its Bitcoin NAV historically, noted as a 63% premium in one report.
Recent Developments
Last week, Strategy sold 1,636,373 common shares through its $21 billion at-the-market program. As of July 20, Strategy holds a total of 607,770 BTC, acquired for approximately $43.6 billion. The company sold thousands of its three preferred stock offerings, totaling $739.8 million. A week prior, Strategy announced a $4.2 billion at-the-market (ATM) share sale as part of its move to expand its Bitcoin holdings further.
Criticism and Response
TD Cowen analysts Lance Vitanza and Jonnathan Navarrete claim that bears view Strategy's premium as a greater fool theory. However, the analysts wrote that the argument that investing in Strategy is not a prudent endeavor because Bitcoin yield depends entirely on the company’s premium is "logically flawed".
The Premium as a Leverage to Buy Bitcoin
TD Cowen highlights the advantages of leveraging Strategy's premium to buy Bitcoin and increase coins per share on a fully diluted basis. The firm has continued to purchase Bitcoin, boasting of high-yield returns to investors.
Current Valuation and Premium
As of the current market price, Strategy's MSTR currently has an equity value of $124.3 billion, including $72 billion in Bitcoin, suggesting a net asset value premium of around 72.6%. This premium has made Strategy one of the most outstanding shares on Wall Street.
In summary, TD Cowen argues the logic for Strategy’s stock trading above just the value of its Bitcoin holdings is that the company’s strategic role as a Bitcoin proxy includes active accumulation plans funded by capital markets, increasing its Bitcoin base and shareholder value, making its equity a growth asset rather than only a reflection of Bitcoin held at spot price.
- Strategy's active Bitcoin acquisition strategy, funded by debt and equity issuance, positions the company as more than just a passive Bitcoin holder, providing potential for additional growth beyond its Bitcoin holdings in the realm of finance and investing.
- TD Cowen's valuation of Strategy's equity includes a market premium from its business model, investor base, and growth prospects, justifying the stock's premium over the net asset value of its Bitcoin holdings, thereby serving as a leveraging tool for purchasing more Bitcoin in the technology sector.
