Bitcoin (BTCUSD) has had a tremendous 2024. Propelled by President-elect Donald Trump's support for the cryptocurrency and his plans to build a strategic reserve of BTC, Bitcoin has rallied 140.8% on a year-to-date basis, comfortably outperforming the S&P 500 Index ($SPX) and the Nasdaq Composite Index ($NASX).
However, to “convert your cash flows and your dividends and your buybacks and your debt into Bitcoin” seems to be a somewhat far-fetched proposition. Yet, that's exactly what MicroStrategy (MSTR) Executive Chairman Michael Saylor has advised Microsoft (MSFT) to do. Saylor believes this will add trillions of dollars in market cap to Microsoft and may just be the next frontier of growth for the software giant.
On the surface, Saylor's strategy may seem wise after his own company's stock has soundly outperformed Microsoft's in 2024. While MSTR stock is up 520% on a YTD basis, MSFT is up a mere 20.8% in the same period.
Which software stock is the better buy now?
Comparing Financials
Microsoft's strong balance sheet allows the company the leeway to continue on its path of innovation and bringing new products to the market.
Over the past 10 years, the Seattle-headquartered tech giant has grown its revenue and earnings at compound annual growth rates (CAGRs) of 11% and 16%, respectively.
In the most recent quarter, Microsoft reported a beat on both revenue and earnings. Revenue for the quarter came in at $65.6 billion, up 16% from the previous year, while earnings grew by 10.4% in the same period to $3.30 per share. Notably, this marked the ninth consecutive quarter of earnings beats from the company.
Net cash from operations was $34.2 billion for Q1 2025 compared to $30.6 billion in the year-ago period. Overall, the company closed the quarter with a cash balance of $20.8 billion with no short-term debt on its books.
Shifting to MicroStrategy, the picture appears to be a bit somber as the company has not been consistently profitable over the past decade. Its sales have experienced a CAGR decline of 2% over the past 10 years.
In the most recent quarter, MicroStrategy missed consensus estimates.
Revenues declined by 10.3% on a year-over-year basis to $116.1 million while losses widened to $1.72 per share from $1.01 per share in the prior year. Further, this was the third consecutive quarter of earnings misses from the company.
In Q3 the company reported a 300% jump in operating expenses to $514.3 million, driven by impairment losses on its digital assets. It ended the quarter with a cash balance of $46.3 million, down slightly.
Notably, its bitcoin count surged to 252,220 at the end of the quarter with an average purchase price of $39,266 per Bitcoin compared to 158,245 Bitcoins in the previous year. Overall, the company held BTC worth about $16 billion on its balance sheet.
However, although the company has increased its BTC count substantially in the past year, investors have been worried about where it is getting the cash for these purchases. In the third quarter, the company sold about 8 million Class A shares to raise about $1.1 billion while its long-term net debt levels surged to $4.2 billion from $2.2 billion in the year-ago period. Moreover, management asserted that it will stay on this path with its “21/21 Plan” which aims to raise $21 billion in equity funding and the same amount in debt funding to continue on its Bitcoin-buying spree.
Thus, with dwindling revenue and widening losses, this fundraise with the sole strategy to fortify its BTC reserves seems a risky proposition on the part of the company.
Strategic Initiatives
Microsoft's strategic initiatives in AI and cloud computing position it far ahead of MicroStrategy's Bitcoin-centric approach. Microsoft is a key player in the AI and cloud markets, driven by Azure's 33% growth and strategic partnerships, most notably with OpenAI. These partnerships have fueled generative AI adoption, with products like Microsoft 365 Copilot and GitHub Copilot gaining strong traction among enterprise customers. Nearly 70% of Fortune 500 companies have adopted Microsoft 365 Copilot, while GitHub Copilot has seen double-digit enterprise growth of 55% quarter-over-quarter, signaling the willingness of businesses to invest in AI-powered productivity tools. Further showcasing enterprise adoption, Microsoft’s Copilot Studio has been embraced by over 100,000 organizations, including major players like Standard Bank, Thomson Reuters, Virgin Money, and Zurich Insurance.
Microsoft has also advanced its AI infrastructure with the development of its Maia 100 accelerator, designed specifically to optimize AI workloads. Customers like Databricks, Siemens (SIEGY) and Snowflake (SNOW) have reported up to 50% better price performance using Microsoft’s Cobalt 100 virtual machines, underscoring the benefits of these investments.
Despite competitive pressures from Amazon (AMZN) and Google (GOOGL) in the cloud market, Microsoft’s Azure maintains an 85% share among Fortune 500 companies, with cloud revenues projected to reach $200 billion by 2028. This robust foundation and diversified growth across AI, infrastructure, and enterprise services highlight Microsoft's dominance in AI and cloud innovation.
In stark contrast, MicroStrategy's strategy is singularly focused on Bitcoin. While the risks of price volatility and regulatory challenges remain, this strategy has, for now, proven successful. The company’s massive Bitcoin holdings have driven its stock performance and secured its inclusion in the prestigious Nasdaq-100 list. MicroStrategy’s recent $3 billion convertible bond issuance, with a 0% coupon, provides interest-free capital to further expand its Bitcoin holdings. This leveraged strategy is accretive to current shareholders, as demonstrated by the company's ability to use tax benefits from Bitcoin-related impairments when prices fluctuate. For instance, impairments in 2022 accounted for nearly 77% of MicroStrategy’s operating expenses, but they also set the stage for significant gains when Bitcoin rebounded this year.
However, MicroStrategy’s heavy reliance on a single asset exposes it to significant concentration risk. The company has effectively sidelined its core software business, rebranding itself as a “Bitcoin Treasury Company.” A substantial drop in Bitcoin’s price, particularly below $60,000, could create severe headwinds for its leveraged strategy and stock performance. Moreover, its reliance on convertible debt introduces additional risks. If MicroStrategy’s stock price falls below the conversion levels of these bonds, the company may be forced to raise capital to repay the principal portion of its debt, potentially creating a liquidity challenge.
What Do Analysts Think About MSTR and MSFT
Overall, analysts are bullish about both Microsoft and MicroStrategy.
Analysts have attributed a rating of “Strong Buy” for MicroStrategy with a mean target price of $530.75, which denotes upside potential of about 37% from current levels.
For Microsoft, analysts also have a “Strong Buy” consensus rating with a mean target price of $504.85. This indicates upside potential of roughly 11% from current levels.
The Bottom Line
Ultimately, Microsoft’s diversified strategy in AI, cloud computing, and enterprise adoption demonstrates sustained innovation and growth, while MicroStrategy’s Bitcoin-centric approach, although successful in the short term, carries considerable risk due to its narrow focus and leveraged capital structure.
On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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