Deceitful Linking Strategies Based on Apple and NVIDIA, Notes Wall Street Veteran
In a dramatic turn of events, Strategy (formerly MicroStrategy), the business intelligence company known for its significant investment in Bitcoin, is facing a series of class action lawsuits alleging securities fraud. The lawsuits, filed following the company's impressive Q2 profits, claim that Strategy misrepresented its business to investors by presenting Bitcoin-driven earnings as if they were recurring, similar to the stable, scalable revenue streams of tech giants like Apple and NVIDIA.
Bitcoin-Driven Earnings vs. Recurring Earnings
Strategy's Q2 2025 earnings of $10 billion were primarily due to accounting gains tied to the increased Bitcoin valuation on its large Bitcoin inventory. This contrasts sharply with a prior $5.9 billion loss due to Bitcoin price fluctuations. However, these earnings arise from non-cash valuation changes rather than operational revenue from products or services, making them volatile and non-recurring.
Critics, including Wall Street veteran Andy Constan, argue that Strategy misleadingly compared its Bitcoin-influenced earnings to those of traditional tech firms, implying that its earnings are recurring, which is not the case.
Implications for P/E Ratio
The P/E ratio, a measure of stock price relative to earnings expected to recur, becomes unreliable or misleading when dealing with non-recurring and highly volatile earnings such as those derived from Bitcoin valuation gains. The volatility in Bitcoin prices can cause large swings in earnings, making Strategy’s reported P/E ratio unstable or negative when fluctuations cause losses.
Potential Class Action Lawsuits
Multiple lawsuits have been filed challenging Strategy’s financial disclosures, focusing on accusations that the company deceptively presented its Bitcoin-driven earnings in a manner implying recurring, stable profits. Plaintiffs allege the company misled investors by emphasizing Bitcoin unrealized gains as earnings, possibly overstating financial health and sustainability.
These lawsuits interrogate the ethical framing of crypto-related earnings and test regulatory boundaries on how such firms can report value generated primarily from volatile non-traditional assets.
In summary, Strategy’s earnings differ fundamentally from recurring earnings due to heavy reliance on Bitcoin valuation gains rather than stable revenue streams. This difference undermines the reliability of its P/E ratio as a valuation metric and exposes the firm to legal challenges over potentially misleading financial presentations and investor communications.
[1]: Source: Damped Spring Advisors CEO Andy Constan's report[3]: Source: Strategy's Q2 2025 financial disclosure
- Strategy's Q2 2025 earnings, largely from Bitcoin's increased valuation, are not equivalent to the stable, recurring revenue streams of traditional tech companies like Apple and NVIDIA.
- Critics suggest that Strategy's Bitcoin-influenced earnings were misleadingly compared to those of tech firms, implying they were recurring, even though they are volatile and non-recurring.
- The P/E ratio, a stock price measurement relative to expected recurring earnings, may be unreliable or misleading when dealing with non-recurring and volatile earnings like those derived from Bitcoin valuation gains.
- Multiple lawsuits have been filed against Strategy, accusing the company of misleading investors by emphasizing Bitcoin unrealized gains as earnings, possibly overstating financial health and sustainability.
- The lawsuits focus on concerns regarding the ethical framing of crypto-related earnings and question regulatory boundaries on how such firms report value generated primarily from volatile non-traditional assets like Bitcoin.
- The difference between Strategy’s earnings, which rely heavily on Bitcoin valuation gains, and recurring earnings exposes the firm to legal challenges over potentially misleading financial presentations and investor communications.
