Wall Street's Biggest Mistake? Why MSTR's 184% Upside Target Is a Bitcoin Bet Gone Wrong

The average analyst price target for Strategy (MSTR) implies a staggering 184% upside from Friday's close, making it the most ambitious target among large-cap stocks on Wall Street. This either positions MSTR as the stock most loved by analysts or the one they've been most wrong about—or perhaps both.

Other cryptocurrency plays like IREN and Circle Internet Group (CRCL) also rank among the top 10 stocks with the highest implied upside, while Oracle (ORCL) stands out as the largest company on the list.

Analysts currently have an average price target of 508.43, down from a peak of 564.23 in August but still far above Friday's closing price of 178.99. This average includes over a dozen analyst targets, though some are restricted from view.

Implied Upside From Average Analyst Price Target

| Symbol | Target | Price | Upside | |--------|--------|-------|--------| | MSTR | 508 | 179 | 184% | | IREN | 87 | 45 | 94% | | SMMT | 34 | 18 | 85% | | NBIS | 163 | 98 | 66% | | BMRN | 89 | 53 | 66% | | CRCL | 142 | 86 | 65% | | CHTR | 332 | 205 | 62% | | FIG | 61 | 38 | 60% | | ORCL | 341 | 218 | 57% | | CELH | 66 | 42 | 57% | Source: FactSet

How Did Analysts Get Strategy So Wrong?

Overly optimistic projections for bitcoin prices and the belief that Strategy should be valued significantly higher than its bitcoin holdings likely explain these steep targets. While this is just a snapshot in time—and a resurgent bitcoin price could change the narrative—Wall Street was caught off-guard by Strategy's 61% slide from its 52-week high, with analysts yet to broadly reassess its prospects.

This misjudgment raises questions, especially given Strategy's prolific issuance of common stock, convertible debt, and preferred stock. Over 13 months through November, the company raised $40 billion for its bitcoin buying binge, generating fees of up to 2% (around $500 million or more) for firms whose analysts cover it.

The only analyst with a hold rating is Gus Gala of Monness, Crespi, Hardt—a firm that hasn't provided services for Strategy's massive sales. Gala upgraded MSTR to a hold last month, citing diminished downside, but had previously rated it a sell even with a $100,000 bitcoin price assumption.

While firms have rules to guard against conflicts of interest, Strategy's continuous bitcoin buying may have tested these rules. For example, securities firms must observe a "quiet period" around share offerings, but Strategy uses at-the-market offerings that allow weekly sales without such restrictions.

Can $1 In Bitcoin Be Worth More Than $1?

The stubbornly high average price target for MSTR comes as Strategy's valuation premium to its bitcoin holdings shrinks but persists. The company's enterprise value is 1.15 times the value of its bitcoin reserve (down from above 2.0 earlier this year), a metric it calls mNAV (multiple of net asset value).

Short-seller James Chanos, who closed his successful bet against MSTR, stated his thesis simply: "Don't pay more than $1 for something worth $1." His bet wasn't against bitcoin but against Strategy's premium disappearing.

If MSTR stock fell to around 149 with bitcoin steady near $90,000, Strategy's enterprise-to-bitcoin ratio would hit 1.0. Alternatively, the premium would vanish if bitcoin rose to $104,000 while MSTR held around 179.

Initially, investors were willing to pay $2 or $3 for $1 worth of bitcoin through Strategy (formerly MicroStrategy), as it provided institutions a bitcoin investment route without holding the cryptocurrency. This role faded after bitcoin ETFs launched, but Chairman Michael Saylor remained seen as "captain of Team Bitcoin," with investors offering 0% loans to accumulate bitcoin, supporting its price and popularizing it as an asset class.

MSTR Stock Vs. Bitcoin ETF

Strategy is now in a different position. Instead of 0% convertible bonds, its go-to funding source is preferred-stock issue STRC with a 10.75% interest rate. This means future bitcoin additions will lose money for shareholders if bitcoin rises less than 11% annually.

Additionally, Strategy faces $800 million a year in interest and dividend payments, equal to 1.4% of its bitcoin holdings at current prices.

Given these costs, it's hard to see how investors are better off with MSTR vs. a bitcoin ETF, which carries fees as low as 0.15%. For example, $100.15 in an ETF gets $100 in bitcoin, while $101.4 of MSTR stock currently gets about $87 in bitcoin, considering interest costs and the 1.15 mNAV.

Strategy recently announced a $1.4 billion U.S. dollar reserve fund to address worries about bitcoin sales, providing 21 months of dividend coverage. However, this might not prevent large bitcoin sales, as MSTR's sell-off has left $6.8 billion of its convertible debt out of the money (below the redemption price).

Strategy's stock faces three key problems:

1. It may keep losing ground to bitcoin until its premium disappears.
2. Potential disqualification by index funds like MSCI USA due to its crypto holding business model could lead passive funds to sell.
3. Under these scenarios, MSTR may fall further below the conversion price for its convertible debt, increasing the risk of a cash crunch by fall 2027 that could force bitcoin unloading.