There's no denying that MicroStrategy(NASDAQ: MSTR) has been on an incredible run recently. For the year, the stock is up more than 125%. And over the past 12 months, MicroStrategy is up more than 442%.
A lot of that performance has to do with Bitcoin(CRYPTO: BTC), of course. MicroStrategy is the largest corporate holder of Bitcoin in the world, and the company's stratospheric stock gains have largely been a result of Bitcoin's strong performance. As long as Bitcoin soars upward, the thinking goes, MicroStrategy will follow. But is the case for buying MicroStrategy still that simple? Let's take a closer look.
The new spot Bitcoin ETFs
First and foremost, investors need to be aware of the entirely new market dynamic created by the launch of the new spot Bitcoin ETFs in January. The new ETFs have been fantastic news for Bitcoin, sending it to a new all-time high of $73,750 in mid-March. And with MicroStrategy holding over 1% of all Bitcoin in the world, this upward momentum has had a very positive impact on MicroStrategy's stock price.
Until January 2024, large institutional investors didn't have many options if they wanted direct exposure to the price of Bitcoin. So they settled on the whole idea of Bitcoin proxy stocks, and MicroStrategy emerged as one of the best options.
But here's the thing -- investors don't need Bitcoin proxy stocks anymore, and that would seem to diminish the overall appeal of holding MicroStrategy. Investors now have spot Bitcoin ETFs, which offer true 1-to-1 exposure to the price of Bitcoin. And that's my concern with MicroStrategy right now. If it is merely a company masquerading as a Bitcoin ETF, then I'm no longer interested. I'd rather just buy a Bitcoin ETF. MicroStrategy needs to offer something else that makes it more valuable than just holding Bitcoin.
New enterprise software offerings
That "something else" should be the company's enterprise software business. Until the company went all-in on its Bitcoin strategy in 2020, this was the primary driver of the company's market valuation. And that's something that seems to get lost in the shuffle these days. Investors seem to be focused on the company's $14 billion Bitcoin stash, and they may be overlooking what's going on elsewhere in the company.
Image source: Getty Images.
At the 27th annual MicroStrategy World event in May, the company made efforts to highlight some of the upcoming software offerings related to artificial intelligence (AI). For example, the company highlighted a new software offering that would theoretically enable companies to build and train their own AI bots. This has value if you believe in the bright, shiny future for artificial intelligence. MicroStrategy has been making rumblings about getting involved with AI since October, so any launch of new AI-related software seems to be a very positive development.
And MicroStrategy is also wading into the still nascent market for Bitcoin-related software offerings. The newest offering is a Bitcoin-based decentralized ID system. Instead of trusting a central authority (such as a corporation or a government agency) to verify your ID, you may soon be able to use the Bitcoin blockchain to verify your ID. According to MicroStrategy, there are many real-world use cases for this technology. For example, it might be used to authenticate legal documents, secure medical records, or verify a user's social media profile.
Is MicroStrategy a buy?
While MicroStrategy deserves praise for attempting to build out its enterprise software offerings, I'm just not convinced yet that any of them are going to gain any traction. For example, reaction to the new Bitcoin software offerings has been tepid at best. The idea of clogging up the Bitcoin blockchain with incredible amounts of personal data didn't go over well with Bitcoin purists (who believe the blockchain should only be used for transactions). And those who took an initial look at some of the software code posted online were not very impressed.
This is important because it suggests that any new software strategy based around AI or Bitcoin may not be enough to really move the needle. And if that's the case, then MicroStrategy is going to have a hard time convincing investors that it is more than just a Bitcoin proxy stock. For that reason, I'm loading up on Bitcoin right now, but I'm taking a much more cautious approach with MicroStrategy.
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Dominic Basulto has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
