TD Cowen Sees Strategy ($MSTR) Under Sell Pressure

TD Cowen analysts have raised concerns about Strategy’s stock facing continued pressure due to an impending MSCI review. The firm predicts that PBTCs like Strategy will likely be removed from all MSCI indexes this February, with a formal decision expected around mid-January.

Cowen labeled the potential removal as “capricious” and warned investors to brace for sustained selling pressure. They highlighted that Strategy is not a fund, trust, or holding company but rather a public operating company with a $500 million software business generating all of its revenue. Additionally, Strategy’s innovative and active Bitcoin treasury operations offer unique Bitcoin-backed securities.

The analysts at Cowen questioned MSCI’s rationale for potentially excluding Strategy, suggesting that it may stem from a bias against crypto rather than any strict classification criteria. MSCI has expressed concerns that PBTCs may resemble investment funds, which are ineligible for index inclusion. However, Cowen argued that Strategy’s structure is distinctly different.

The stakes are high for Strategy, as JPMorgan warned that excluding the company from MSCI could trigger $2.8 billion in passive outflows, potentially escalating to $8.8 billion if other indexes follow suit. This could further depress Strategy’s share price, which has already fallen more than Bitcoin in recent months.

Despite the challenges, Cowen maintains a bullish long-term outlook for Strategy. They estimate that the company could hold 815,000 BTC by 2027, supporting a price target of $585 per share, implying a significant upside from current levels. Cowen attributes the recent weakness in Strategy’s stock to market volatility and index-related concerns rather than a flaw in the company’s core accumulation model.

Strategy’s chairman, Michael Saylor, dismissed index concerns, emphasizing that the company is a fully operational business with active software and Bitcoin-backed credit programs. Saylor envisions accumulating $1 trillion in Bitcoin and growing the company 20-30% annually, leveraging long-term appreciation to create a substantial store of digital collateral. He plans to issue Bitcoin-backed credit at yields higher than traditional fiat systems, offering safer alternatives.

Cowen also highlighted potential tailwinds for Strategy, including a possible inclusion in the S&P 500, which could broaden institutional ownership and stabilize stock flows. Additionally, regulatory clarity around Bitcoin could boost investor confidence.

The rise of Strategy underscores the increasing role of Bitcoin in global finance, with its inclusion in indexes like the Nasdaq 100 and MSCI benchmarks channeling crypto exposure into mainstream portfolios. If MSCI excludes Strategy, Cowen believes that while short-term disruption may occur, long-term adoption trends will remain intact.

Bitcoin has faced challenges recently, dropping from an October high above $126,000 to around $88,000. Despite this, Strategy continues to make significant Bitcoin purchases, now holding over 3% of the total supply.

In conclusion, Strategy’s stock may face continued pressure due to the impending MSCI review, but the company’s long-term prospects remain promising. Investors should monitor developments closely and consider the potential opportunities presented by Strategy’s unique business model.