In a bullish development for Strategy (MSTR) shareholders, investment bank KBW has initiated coverage of the company with an outperform rating and a lofty $560 price target. The glowing endorsement sent Strategy shares surging in Thursday trading as analysts lauded the firm’s leveraged exposure to bitcoin and potential eligibility for S&P 500 index inclusion.
Strategy’s Bitcoin Bet Pays Off
Formerly known as MicroStrategy, Strategy has gone all-in on bitcoin under the leadership of co-founder Michael Saylor. The company boasts the largest corporate bitcoin treasury of any publicly traded entity, providing investors with a unique vehicle to gain exposure to the flagship cryptocurrency. KBW believes this strategy positions the firm for significant upside.
Strategy is an appealing investment for equity investors looking for levered bitcoin exposure.
KBW Analyst Bill Papanastasiou
By betting big on bitcoin, Strategy has tied its fate to the volatile crypto market. But so far, the gamble appears to be paying off. The stock has significantly outperformed the broader indices year-to-date, driven by bitcoin’s impressive rally. If the bullish momentum continues, Strategy shareholders could be in for a windfall.
Accounting Change Opens Door to S&P 500
Beyond its bitcoin exposure, Strategy may soon check another key box for investors – S&P 500 eligibility. KBW notes that the firm’s shift to fair value accounting for its bitcoin holdings in 2025 could pave the way for inclusion in the benchmark large-cap index.
- Strategy adopting FASB’s updated bitcoin accounting standards in Q1 2025
- Change allows unrealized gains/losses on bitcoin to flow to net income
- Positive net income is critical criteria for S&P 500 inclusion
Strategy took a $1B impairment loss on its bitcoin in Q4 2024 under the prior accounting treatment. But the shift to mark-to-market accounting this year means those swings will now show up in the company’s bottom line. And with bitcoin trending upwards, that could translate to consistent profitability – checking a major box for S&P 500 eligibility.
Leveraging the Bitcoin Tech Stack
Beyond its expansive bitcoin holdings, KBW sees significant potential for Strategy to grow and leverage its position in the Bitcoin ecosystem. Analysts believe the firm has multiple levers to pull to expand its bitcoin treasury, hinting at the possibility of yield generation strategies.
But the real opportunity may lie in Strategy capitalizing on the burgeoning app economy being built on top of the Bitcoin blockchain. As the most secure, decentralized, and valuable crypto network, Bitcoin is attracting developer talent looking to build the next generation of financial applications. KBW speculates that Strategy is well-placed to benefit from this “massive value unlock.”
The development of applications on top of the Bitcoin network could result in a massive value unlock, as it is the most secure, decentralized and valuable public blockchain.
KBW Research Report
With bitcoin recently eclipsing the $100K milestone, crypto proponents are more confident than ever in the asset’s long-term staying power. Strategy offers a differentiated way for traditional investors to gain exposure to this megatrend. Between its sizable bitcoin treasury, potential S&P 500 inclusion, and opportunity to capitalize on emerging Bitcoin applications, Strategy presents a compelling risk/reward proposition for bulls willing to stomach the volatility.
