MicroStrategy Likely To Join Nasdaq 100 Amidst Bitcoin Surge

By Medha Singh

(Reuters) – A meteoric rise in MicroStrategy's shares has positioned the bitcoin hoarder as a probable candidate for the tech-heavy Nasdaq 100 index ahead of an annual reshuffle this week.

The loss-making software company, an assertive investor in the highly volatile cryptocurrency, has seen its shares soar nearly 500% this year, increasing its market capitalization to $90 billion.

The world’s largest cryptocurrency hit the $100,000 milestone for the first time last week and has doubled in value this year. This surge was significantly bolstered after Donald Trump’s U.S. election victory, as investors anticipate a crypto-friendly administration.

Inclusion in the Nasdaq 100 could further propel MicroStrategy’s growth, whose bitcoin holdings were valued at approximately $42 billion, attracting more investment firms to include the stock in their portfolios to accurately reflect the index's composition.

For a stock to enter the index, it must rank among the top 100 by market value, maintain a minimum daily trading volume of 200,000 shares, and not belong to the financial sector. The reshuffle announcement is expected this Friday after market close.

"MicroStrategy seems to check all the boxes for entry into the Nasdaq 100 in December," stated Art Hogan, chief market strategist at B. Riley Wealth Management.

This potential addition would provide the Nasdaq 100 index with indirect exposure to bitcoin and could enhance the appeal of related ETFs to a younger investor demographic, according to Todd Rosenbluth, head of ETF research at VettaFi.

Data analytics firm Palantir (NASDAQ:PLTR), which has quadrupled in market value to $160 billion this year, is another contender for index inclusion.

On the other hand, AI server maker Super Micro Computer (NASDAQ:SMCI) may be at risk of being removed from the index due to delays in filing annual and quarterly reports. However, Super Micro’s CEO, Charles Liang, expressed confidence that the company would not face delisting.

RIDING ON BITCOIN BOOM
MicroStrategy adopted bitcoin as its primary treasury reserve asset in 2020, under the leadership of co-founder Michael Saylor, as revenue from its software business slowed. The company has accumulated 400,000 bitcoins, making it the largest corporate holder of the digital asset. It financed these purchases through a mix of equity and debt deals, controlling over 2% of bitcoin’s total supply, capped at 21 million.

Despite reporting a net loss of $340 million for the three months ending September 20, marking its third consecutive quarterly loss, not all investors are convinced about MicroStrategy’s potential inclusion in the tech index.

Michael O'Rourke, chief market strategist at JonesTrading, suggested that MicroStrategy’s surging market value "is not the result of its software business, but its significant bitcoin investments financed through notable equity and debt capital markets activity." He argued that MicroStrategy should be reclassified as a “financial” stock, which would disqualify it from the Nasdaq 100.

J.P. Morgan noted that MicroStrategy is viewed by market participants as akin to a leveraged bitcoin fund.

Despite mixed opinions, Wall Street remains optimistic about the stock's future, with all nine brokerages currently covering MicroStrategy rating it "buy" or higher. The median price target stands at $510, indicating a potential 35% increase from the stock's last closing price.