US investment bank Maxim Group initiated research coverage on MicroStrategy (MSTR) with a Buy rating, highlighting the company’s Bitcoin play and AI-driven cloud transition as key factors driving its positive outlook.
MicroStrategy's strategy of holding bitcoin, led by Executive Chairman Michael Saylor when he was CEO, has led to the acquisition of 226,331 bitcoins as of June 20, 2024.
Since the company began accumulating bitcoin, its stock has surged approximately 870%, compared to a roughly 100% gain for its software peers. The investment in bitcoin is estimated to represent 55% of MicroStrategy's stock value, analysts noted.
MicroStrategy stock rose 5% Tuesday.
Maxim Group also pointed out MSTR’s ongoing transition to cloud services, which, despite masking some of the progress in its operating business, is picking up speed.
This shift has yielded a 33.6% year-over-year growth in subscription services revenue, totaling $81 million in 2023. Although product licenses and product support/maintenance revenues have seen declines of 12.9% and 1% respectively, the cloud gross margin improved to 60.9% in 2023 from 59.2% in 2022.
Analysts believe that the cloud gross margin could reach the mid-70% range within the next five years, despite it being significantly lower than the 90%+ contribution from product licenses and support revenue.
Moreover, they noted that AI technology will significantly boost MicroStrategy's cloud transition. The company's core competency in generating analyses and conclusions from data is complemented by generative AI, which is seen as another valuable tool.
“Given MSTR's multidecade history and customer relationships, we believe it is uniquely positioned to deliver AI solutions,” the Maxim team wrote. “Moreover, the company's AI solution is cloud-native, which we believe will encourage faster migration to cloud solutions.”
Maxim set a 12-month price target of $1,835 on MSTR shares.
The stock is currently rated as Buy by 13 analysts, while 7 and 4 rate it as Neutral and Sell, respectively.