Could Investing $40,000 in MicroStrategy Make You a Millionaire?

Are you hopeful that investing in MicroStrategy could lead to millionaire status? A $40,000 investment in this stock five years ago would have generated an impressive $1.08 million today, but achieving similar success in the future is likely to be challenging.

MicroStrategy (MSTR) has gained substantial attention as a data analytics company that has transitioned significantly in recent years. In the summer of 2020, the firm made a transformative decision by converting most of its cash reserves into Bitcoin (BTC) and has been expanding that investment ever since. As it stands, MicroStrategy operates more like a bank focused on Bitcoin than a traditional software company.

The strategy centered around Bitcoin has been very beneficial for MicroStrategy's investors. If a $40,000 stake was placed in this stock five years ago, it would have returned a staggering $1.08 million, outpacing the performance of the S&P 500 market index as well as Bitcoin itself:

MSTR Total Return Level data by YCharts.

However, past performance does not guarantee future results. So, can a $40,000 investment in MicroStrategy replicate that millionaire-making feat starting in 2024?

Challenges in Repeating Past Success

First, it is important to understand that turning a $40,000 investment into a million dollars in five years again is highly unlikely. The previous five years saw a compound annual growth rate (CAGR) of an astonishing 93.5%. Doubling your investment every year for five consecutive years is an extraordinary achievement, and maintaining that level of growth appears implausible.

Furthermore, from a market cap perspective, starting at around $92.1 billion means MicroStrategy would need to reach a valuation of $2.3 trillion to accomplish that next 25-fold increase. Only a handful of companies have ever hit that mark, and it’s uncertain how many will do so in the coming years.

Reaching a trillion-dollar market cap would also necessitate a significant rise in Bitcoin's overall value. Currently, Bitcoin has a market valuation close to $2 trillion, especially after it recently touched $100,000 per coin. MicroStrategy holds about 2% of all Bitcoins ever created. Therefore, to build a trillion-dollar reserve in Bitcoin, there would need to be a remarkable combination of rising cryptocurrency prices and MicroStrategy's ongoing acquisitions of Bitcoin.

Exploring Long-Term Potential for Investors

Even though it may be unrealistic for MicroStrategy to replicate its last five years of returns in the next five, extending the time frame could yield different results. For instance, if MicroStrategy could maintain a more achievable annual growth rate of around 14%, an investment of $40,000 might grow to approximately $1.06 million by 2049. This rate of growth is slightly above the long-term averages of the S&P 500. While 25 years is a long time to wait, such a prospect is not outside the realm of possibility.

Investors could opt to enhance their returns through various strategies:

• One straightforward way is to contribute additional funds to your MicroStrategy investment, although this means the initial focus on a $40,000 stake would change.
• MicroStrategy is actively trying to raise more capital through stock sales and debt, intending to invest the proceeds into more Bitcoin. The company has plans to generate $42 billion over the next three years, using a balanced approach between equity and debt. While this strategy involves risk, it could lead to exponential growth in MicroStrategy's Bitcoin holdings, potentially exceeding the current 2% stake.
• Another possibility is for the company to pivot away from its software business and focus on being an asset manager, potentially offering dividends. While most profits could still support Bitcoin purchases, even a modest dividend might attract investor interest. Reinvesting those dividends could accelerate the timeline to a million-dollar return.

Weighing Risks and Rewards of Bitcoin Investments

The aforementioned capital-raising plan highlights the trade-off between risk and return for MicroStrategy investors. The aggressive push to acquire Bitcoin raises the stakes, contributing to significant upside potential in the best scenarios. In many ways, owning shares of MicroStrategy resembles investing in Bitcoin through a leveraged ETF, amplifying both gains and losses.

This type of investment is highly speculative, especially at a time when stock prices are close to their all-time highs. Picking up a few shares might be worthwhile if bought at lower prices following a market correction, but currently, MicroStrategy is positioned at a higher valuation.

Alternatives May Offer Better Millionaire-Making Potential

In the end, time and patience with steady, proven long-term performers can often outweigh investing in volatile stocks like MicroStrategy. If you anticipate needing to wait 25 years to hit a milestone with MicroStrategy, pursuing more stable stocks or ETFs might be a wiser choice.

If you resonate with MicroStrategy's Chairman Michael Saylor, who maintains that investing in Bitcoin is a sound financial strategy, it might be worthwhile to skip MicroStrategy's inherent financing risks and consider building your own Bitcoin portfolio instead.

Note: The author holds positions in Bitcoin and acknowledges the presence of Bitcoin within their investment portfolio.

MicroStrategy, Investment, Bitcoin