TD Cowen lowers strategy target price to $440, Bitcoin financing raises concerns over equity dilution

Investment bank TD Cowen recently downgraded the one-year target price for Bitcoin reserve company Strategy (formerly MicroStrategy) from $500 to $440. Paradoxically, while lowering the target price, analysts expect Strategy to significantly increase its Bitcoin acquisitions. This reflects a deeper dilemma between financing expansion and shareholder returns.

Dilution Issues Behind the Target Price Downgrade

Financing methods lead to decreased returns

The core reason for TD Cowen’s target price reduction is straightforward: Strategy plans to raise funds by issuing common and preferred shares, which dilutes existing shareholders’ Bitcoin returns.

In simple terms, Strategy’s business logic is to acquire Bitcoin through financing, then profit from Bitcoin appreciation. But when the company issues more shares, the same Bitcoin returns are spread over more shareholders, naturally reducing each shareholder’s yield.

Acquisition plans increase significantly but financing options are limited

Data comparison makes this clearer:

Strategy aims to acquire more Bitcoin, which is not an issue in itself. However, limited financing channels—primarily issuing stock and preferred shares rather than debt—make equity dilution inevitable. This is why, despite increased acquisition targets, the target price has been lowered.

Analyst Optimism vs. Reality

Still optimistic about long-term value

Notably, despite lowering the target price, TD Cowen analysts have not changed their positive outlook on Strategy as a Bitcoin investment vehicle. This optimism is based on Bitcoin price forecasts:

• Reaching approximately $177,000 by December 2026
• Reaching approximately $226,000 by December 2027

Compared to the current Bitcoin price of $96,903, this implies analysts expect Bitcoin to rise about 1.3 times over the next two years. If this forecast proves correct, Strategy as a Bitcoin holder could realize substantial gains, even with equity dilution.

Realistic trade-offs

But there’s a practical question: Can Strategy’s Bitcoin appreciation be large enough to offset the reduced returns caused by equity dilution? This depends on two variables—Bitcoin price increase and degree of equity dilution. The target price downgrade essentially reflects analysts’ reassessment of this trade-off: while optimistic about Bitcoin’s prospects, they believe the negative impact of dilution will partly offset this optimism.

Insights for Strategy’s Business Model

Strategy’s predicament actually highlights a broader issue: as a pure Bitcoin holding company, its stock performance depends entirely on two factors—Bitcoin price and share structure. When the company needs to raise large-scale financing to expand its Bitcoin holdings, equity dilution becomes an unavoidable cost.

This also explains why Strategy continually raises funds to acquire Bitcoin. In the Bitcoin market, owning more Bitcoin means greater absolute gains when prices rise. But restrictions on financing methods (mainly equity financing) put pressure on the returns for existing shareholders.

Summary

TD Cowen’s downgrade may seem contradictory—expecting increased acquisitions but lowering the target price—but the logic is clear: equity dilution offsets some of the gains from Bitcoin acquisitions. Analysts remain optimistic about Bitcoin’s long-term prospects, expecting prices to reach $177,000–$226,000 in the next two years, but such optimism requires substantial price increases to compensate for dilution. The core challenge for Strategy is balancing financing expansion with shareholder returns, and ultimately, this balance depends on the actual performance of Bitcoin prices.