What Happened?
Shares of bitcoin development company MicroStrategy (NASDAQ: MSTR) fell 3.3% in the morning session after the price of Bitcoin fell and an analyst reiterated a 'Sell' rating citing risks in the company's funding strategy.
The decline was driven by a drop in the price of Bitcoin and a critical analyst report. Monness analyst Gus Gala reiterated a 'Sell' rating on the stock with a price target implying roughly 50% downside. Gala's concerns center on the company's strategy of issuing new shares to fund its Bitcoin purchases, which dilutes existing shareholders. Compounding the pressure, Bitcoin's price fell from around $117,000 late Friday to below $112,000, its lowest level since early July, dragging down other crypto-linked stocks as well.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy MicroStrategy? Access our full analysis report here, it’s free.
What Is The Market Telling Us
MicroStrategy’s shares are extremely volatile and have had 76 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 6 days ago when the stock dropped 8% on the news that investors took some profits off the table as markets awaited signals on future monetary policy from the Federal Reserve's Jackson Hole symposium later in the week.
The downturn in the market was largely attributed to a significant sell-off in megacap tech and chipmaker shares. Nvidia, Advanced Micro Devices (AMD), and Broadcom all saw notable drops, dragging down the VanEck Semiconductor ETF. Other major tech-related companies like Tesla, Meta Platforms, and Netflix were also under pressure. A key reason for this trend is that much of the recent market gains have been concentrated in the "AI trade," which includes these large technology and semiconductor companies. So this could also mean that some investors are locking in some gains ahead of more definitive feedback from the Fed.
MicroStrategy is up 15.5% since the beginning of the year, but at $346.44 per share, it is still trading 26.9% below its 52-week high of $473.83 from November 2024. Investors who bought $1,000 worth of MicroStrategy’s shares 5 years ago would now be looking at an investment worth $23,574.
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefiting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.
