After a long stretch in decline, Bitcoin has been in rebound mode, gaining 25% over the past 3 months. Of course, being a turbocharged proxy for the leading cryptocurrency, Strategy (NASDAQ:MSTR) shares have followed suit and have gained 72% over the same period.
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Yet, heading into the Bitcoin treasury company’s Q1 results today after the close, Monness analyst Gustavo Gala thinks investors should approach the readout with caution.
The analyst believes the 42/42 Plan – its capital allocation program aimed at raising and deploying roughly $42 billion in equity and $42 billion in debt-like instruments over time to fund ongoing Bitcoin accumulation – has not yet demonstrated that it can maintain a stable balance between equity and debt financing. This is evident when comparing roughly $30 billion in common stock issued vs. about $14 billion in preferred securities (STRK, STRF, STRD, STRC) and approximately $8 billion in convertible debt, including a ~$2 billion issuance in February 2025.
Against this structure, any valuation multiple above HODL appears difficult to sustain, particularly as more companies adopt similar Bitcoin treasury strategies, increasing competition and raising the premium required to justify continued equity dilution.
In 1Q26, Strategy recorded $14.5 billion in unrealized losses on its Bitcoin holdings. From a financing mechanics perspective, Gala continues to see pressure on the valuation multiple driven by several factors. First, the breakdown in implied volatility has limited the convertible debt component of the 42/42 Plan, which Gala believes is now largely reflected in expectations. Second, uptake of STRK/STRF/STRD/STRC issuances, intended to partially replace converts, has improved but still introduces growing dilution for common shareholders as interest obligations are funded. Third, in the absence of robust debt capital markets access, Strategy may rely on conventional term financing.
The 42/42 Plan itself relies on ongoing equity dilution, with ATM issuance now expected to fund Bitcoin purchases at roughly 1.0x to under 2.5x mNAV (currently around 1.1x), as well as cover interest and preferred dividends, and potentially for other management-determined uses. The updated language introduced in August 2025 allows broader discretion to issue common stock when deemed advantageous, which has already been used more frequently as mNAV traded in the 1.5x–1.7x range, thereby potentially causing “consternation to common holders.”
Additional recent considerations include potential MSCI index inclusion risks and the fact that Strategy’s average Bitcoin cost basis is now broadly in line with the current market price.
Meanwhile, although Bitcoin’s price has rebounded, based on prior cycle patterns, Gala does not expect an “imminent move up.”
“As we have mentioned in the past, MSTR could be a way to express optimism in BTC swinging north/bull cycle taking hold when security is trading at a discount/par near end of cycle (we don’t endorse it),” Gala summed up. “By our measure, we are entering day 200 of peak to trough move (if our view that a trough yet to be reached this cycle holds true) vs. usual peak to trough moves in the ~350 day range.”
Accordingly, Gala assigns MSTR shares a Neutral rating, while his $150 price target points toward a one-year decline of ~20%. (To watch Gala’s track record, click here)
That said, Gala is currently the lone MSTR skeptic on the Street. All 12 other recent reviews are positive, making the consensus view a Strong Buy. Moreover, the $283.33 average price target implies the stock will gain 51.5% in the months ahead. (See MSTR stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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