MicroStrategy’s stock deemed a ‘buy,’ with bitcoin’s halving a budding catalyst

For that reason, Benchmark Company analyst Mark Palmer initiated coverage of MicroStrategy shares Tuesday with a buy rating and $990 price target, noting that the bitcoins “represent the bulk of the company’s valuation, with its software business serving in a supporting role as ballast to that valuation and a generator of cash flow used for the purchase of additional bitcoins.”

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With bitcoin’s halving expected to take place in April, Palmer thinks the stock has shine. ”Notably, the first three halvings were associated with bull runs in the price of bitcoin,” he wrote.

Bitcoin has already been on a tear recently, and Palmer sees other forward catalysts ahead. For example, the launch of spot bitcoin exchange-traded funds (ETFs) earlier this year seems to be spurring demand for the cryptocurrency, and not at the expense of MicroStrategy’s stock.

See also: 5 ways bitcoin ETFs are already changing how crypto is traded

“While some observers have suggested that the introduction of spot bitcoin ETFs in the U.S. would weigh on [MicroStrategy’s] share price, since equity investors who bought the stock as a bitcoin proxy have a new array of such proxies to choose from, the stock continues to offer investors a unique value proposition, in our view,” he wrote.

Unlike ETFs, MicroStrategy can purchase bitcoins using money raised from debt and equity issuances, according to Palmer. The company can also put free cash flow generated from its software business toward its crypto buying.

Palmer assumes that MicroStrategy will up its holdings to 200,000 bitcoins by the end of 2025, while he thinks the price of the cryptocurrency could hit $125,000 by then — potentially giving a roughly $25 billion valuation to the company’s bitcoin holdings at that time.

MicroStrategy’s stock gained more than 9% Tuesday alongside a broader crypto rally.