Bitcoin-Centric Credit Expansion Will Shape Volatile Yet Enduring Long-Term Outcomes

Catalysts

About Strategy

Strategy focuses on using Bitcoin as core treasury capital and issuing digital credit instruments such as Stretch to build a large, leveraged digital asset platform.

What are the underlying business or industry changes driving this perspective?

• Although Strategy now holds approximately 4% of all Bitcoin that will ever exist and positions this as a long-term advantage, the business model remains highly concentrated in a single asset class. This concentration can keep future revenue and earnings tied closely to Bitcoin price cycles rather than more diversified cash flow streams.
• While demand for Bitcoin among global banks, ETFs and institutional investors has increased and Bitcoin dominance within the wider crypto market has risen, this growing institutional footprint also invites more regulatory scrutiny and policy risk. These factors could affect Strategy’s access to capital and the effective amplification of its balance sheet over time, with potential implications for net income volatility.
• Although digital credit products such as Stretch have grown quickly and now attract large preferred equity funds, the need to maintain a sizeable U.S. dollar reserve and manage dividend expectations tightly suggests ongoing pressure on funding costs. This pressure can limit the upside to net margins even if issuance volumes remain healthy.
• While Strategy has executed sizable capital raises, repurchases and liability management and now reports relatively low net leverage and strong BTC coverage on its debt, the dependence on continued appetite for equity and preferred issuance makes future balance sheet optimization sensitive to broader credit market conditions. These conditions could influence interest expense and refinancing costs.
• Although tokenization, digital credit adoption and the build-out of Bitcoin centric credit markets create a path for Strategy to sell more Stretch and related instruments, the company must prove that digital credit can remain liquid, trade near par and support a stable dividend across full Bitcoin cycles. This will be critical for sustaining revenue from capital issuance and stabilizing earnings.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more pessimistic perspective on Strategy compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Strategy's revenue will decrease by 3.3% annually over the next 3 years.
• The bearish analysts are not forecasting that Strategy will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Strategy's profit margin will increase from -6294.2% to the average US Software industry of 11.7% in 3 years.
• If Strategy's profit margin were to converge on the industry average, you could expect earnings to reach $52.9 million (and earnings per share of $0.11) by about September 2029, up from -$31.4 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $37.9 billion in earnings, and the most bearish expecting $-6.8 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 1437.4x on those 2029 earnings, up from -1.7x today. This future PE is greater than the current PE for the US Software industry at 29.8x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.92%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Strategy’s business is heavily tied to Bitcoin, with 843,775 BTC held and key metrics such as Bitcoin per share and BTC yield driving management focus, so a prolonged period of weaker Bitcoin prices or lower BTC liquidity than management expects could put sustained pressure on BTC reserve values and keep operating results driven by large non cash fair value losses, which would weigh on reported earnings and may also constrain revenue growth from digital credit issuance.
• The company is actively building a large digital credit stack around Stretch and other preferreds, with US$10.5b of STRC notional, US$15.4b of preferred equity and US$6.7b of convertible debt, so any long period where Stretch remains below par or trades with elevated volatility, for example around US$89.50 or lower as seen in June, could increase funding costs, reduce investor appetite for new issuance and compress the net spread on this credit engine, which would pressure net margins and earnings.
• Strategy relies on continued access to equity and credit markets, having raised US$17b of capital year to date 2026 and targeting ongoing issuance of both MSTR and digital credit, so a tougher long term backdrop for risk assets or a credit cycle that is less supportive than management expects could limit the company’s ability to refinance or equitize its convertibles on attractive terms, increase interest expense and dividend burdens and create headwinds for earnings and free cash flow.
• The business model assumes digital credit on Bitcoin can scale and remain attractive versus private credit, bank preferreds and junk bonds, helped by double digit effective yields. Yet management is already adjusting Stretch policies, U.S. dollar reserve targets and buyback plans to stabilise pricing, which suggests that if long run demand proves more cyclical or more sensitive to U.S. dollar reserve levels than expected, Strategy may need to keep more capital in low yielding cash and accept thinner spreads, resulting in slower revenue growth and lower net margins.
• Management sets an extremely ambitious goal for Strategy to become the world’s most valuable company measured by market cap through owning the “most capital” in Bitcoin and issuing the “strongest credit” via Stretch. This long term aspiration depends on continued institutional and banking adoption of Bitcoin, regulatory comfort with tokenised and digital credit structures and the stability of complex capital markets relationships, so any sustained slowdown in bank adoption, regulatory pushback on Bitcoin based credit or loss of confidence after sharp price dislocations such as Stretch’s move toward US$70 in June could limit scale, reduce issuance volumes and keep earnings and equity valuation below these aspirations.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Strategy is $125.0, which represents up to two standard deviations below the consensus price target of $226.2. This valuation is based on what can be assumed as the expectations of Strategy's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $435.0, and the most bearish reporting a price target of just $125.0.
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2029, revenues will be $451.0 million, earnings will come to $52.9 million, and it would be trading on a PE ratio of 1437.4x, assuming you use a discount rate of 8.9%.
• Given the current share price of $136.52, the analyst price target of $125.0 is 9.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.