Data analytics veteran MicroStrategy(NASDAQ: MSTR) has been crushing the market in recent years. In the summer of 2020, the company converted nearly all of its cash reserves into Bitcoin(CRYPTO: BTC) and is continuing to build on that cryptocurrency investment. These days, MicroStrategy looks more like a Bitcoin-focused bank than a software company.
The Bitcoin strategy has served MicroStrategy investors well so far. If you invested $40,000 in this stock five years ago, you’d have $1.08 million in the bank by now. This skyrocketing return left the S&P 500(SNPINDEX: ^GSPC) market index far behind and outperformed Bitcoin by a large margin:
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But that’s all in the past. Could a $40,000 MicroStrategy investment make you a millionaire after a 2024 start, too?
Let’s find out.
First and foremost, MicroStrategy probably won’t turn a $40,000 investment into a million-dollar return in five years or less. Yes, that’s what happened over the last half-decade, but I’m looking at a compound annual growth rate (CAGR) of 93.5% here. Doubling your money every year for five straight years is incredibly impressive. Keeping the streak alive for five more years seems impossible.
It’s an audacious target from other perspectives, too. Starting from a $92.1 billion market cap, MicroStrategy would be worth $2.3 trillion at the end of the next 25-fold multiplication. Only five stocks have ever reached that pinnacle, and only a handful more seem likely to get there in the next five years.
And MicroStrategy’s trillion-dollar journey would require a pretty massive increase in Bitcoin’s market value. The largest cryptocurrency has a total market value of about $2 trillion today after reaching $100,000 per coin on Wednesday evening. MicroStrategy currently owns about 2% of all Bitcoins ever produced. Building a trillion-dollar Bitcoin reserve will take an impressive combination of cryptocurrency price gains and MicroStrategy’s crypto purchases.
So, I don’t expect MicroStrategy to repeat its last five years in the next five. But the calculation changes if you give the company more time to deliver a 25-fold return.
For example, I could easily imagine MicroStrategy keeping up a more modest annual growth rate of roughly 14% for a long time. At that rate, you’d have $1.06 million by the end of 2049. That’s still a little bit faster than the S&P 500’s long-term averages. And maybe I’m asking for too much by assuming a 25-year run of wealth-building success, but this thought experiment feels fairly reasonable.
Now, there are a few ways to accelerate these returns over the years.
Adding more money to your MicroStrategy investment would be the most obvious method, but it won’t be a pure $40,000 investment anymore.
MicroStrategy has already committed to a third idea, which is to raise more money through dilutive stock sales and interest-carrying debt papers, with the sole intention of buying more Bitcoin. Management plans to raise $42 billion over the next three years in a 50/50 stock-to-debt mix. More capital-raising efforts could follow, keeping the Bitcoin-powered pedal to the metal. It’s a risky strategy, and MicroStrategy could go belly up if the next crypto winter is longer and colder than the last one — but it will also boost MicroStrategy’s Bitcoin holdings beyond the current 2% slice of the entire asset class.
The company might shrug off the software business and embrace its emerging role as an asset manager, keeping investors interested with a dividend. Most of the company’s profits would still go into buying more Bitcoin, but a small portion could drive a modest dividend policy. Reinvesting those payouts in more stock would shorten the time to the desired million-dollar return.
The second bullet point holds the key to making millions with MicroStrategy stock. Management’s ultra-aggressive Bitcoin acquisition plan increases the business risk but would also boost the stock’s growth potential in a best-case scenario. At this point, owning MicroStrategy shares is a lot like buying Bitcoin through a leveraged exchange-traded fund (ETF) that seeks to multiply the cryptocurrency’s gains and losses in the long run.
That’s a highly speculative investment and not something I would consider buying while share prices are soaring near all-time highs. A couple of shares could be fun if I could pick them up at a modest price after a sharp price correction, but that’s not where MicroStrategy stands today.
As always, time and patience with robust long-term performers can beat skyrocketing market darlings in the long run. If I had to wait 25 years before reaching my planned investment target with MicroStrategy stock, I’d much rather do it with a more stable stock or ETF.
And if you agree with MicroStrategy Chairman Michael Saylor that owning Bitcoin is the only reasonable money management plan today, you should consider cutting out his company’s financing risk and building your own Bitcoin position instead.
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