Technology

Despite MicroStrategy Stock's 278% Gain, Short Sellers Are Not Backing Away

Jordan Chussler

Published: July 25, 2024 11:45 am

Key Points

• MicroStrategy is up 278% over the past six months. 
• Nonetheless, significant short interest is growing.
• Growth investors should grab a copy of 24/7 Wall Street’s brand-new AI report, “The Next NVIDIA,” to discover many other stocks that could benefit from supplying NVIDIA and the next wave of growth in AI trends.

According to consultancy firm Deloitte, cloud computing is expected to be a major driver of the tech sector’s growth in the second half of 2024 and into 2025. In fact, combined with artificial intelligence (AI) and cybersecurity, cloud computing is one of the three sub-industries that will contribute to the sector’s ongoing rapid expansion. 

Public spending on cloud computing infrastructure and services, per Deloitte, is expected to grow by more than 20%. And that is exactly the area of focus for Virginia-based MicroStrategy Inc. (NASDAQ: MSTR).

Cloud Computing Is a Crowded Field

The cloud computing space is a crowded industry, and the main player in that arena is none other than Amazon.com Inc. (NASDAQ: AMZN). To put it into context, Amazon Web Services — the tech giant’s cloud computing business segment — brought in an astounding $25.04 billion in revenue in the first quarter of the year. MicroStrategy, which was founded in 1989 five years before Amazon, has a market cap of $27.54 billion. 

That alone could draw the interest of short sellers, who are known to prey on smaller companies operating in industries that are difficult to penetrate. But after MicroStrategy gained an eye-catching 278% over the past six months, that adds fuel to the shorts’ fire. 

According to Nasdaq.com, 2.746 million shares of MSTR are currently being shorted. That accounts for 17.42% of its public float. But why so much short interest when the forecasts for cloud computing are so strong? MicroStrategy is suffering from flawed fundamentals, which ultimately resulted in analysts assigning a consensus earnings per share forecast for the next quarter of -93 cents. 

The company’s trailing 12 months of free cash flow is -$1.89 billion after its quarterly revenue fell year over year from $132.55 million in December 2022 to $12.48 in December 2023. Turning the calendar has not inspired any pundits, either. In the first quarter of 2024, MicroStrategy announced that quarterly revenue fell once again, this time by 5.5% to $115.2 million, according to the company’s website. 

Institutional ownership stands at 60.62%, but looking at insider activity is what is truly shocking. Over the past 12 months, there have been no open market buys by insiders, while there have been 164 insider sells. For better or for worse, the writing appears to be on the wall for MicroStrategy.