Michael Saylor’s MicroStrategy meets all the requirements for inclusion in the Nasdaq 100, which would trigger share purchases by the $451 billion in exchange-traded funds around the world that directly track the index.
However, market analysts consider the possibility that the company will be passed over in the annual reorganization of the index this Friday for a simple reason: the MicroStrategy Turned Into a Leveraged Bet on Bitcoinlinked to a small software company that many say is not relevant to being among the 100 most important stocks on the Nasdaq.
“The idea of an index is that it should faithfully represent the set of stocks that are in the universe,” said Lance Vitanza, an analyst at TD Cowen, who has a “buy” recommendation on MicroStrategy. “Any large company that makes up a significant part of the Nasdaq universe should be reflected as part of the index.”
READ MORE: How MicroStrategy Raised $41 Billion in Bitcoin by Borrowing Money
Shares of the Virginia-based company co-founded by Saylor have mesmerized Wall Street this year by rising more than 500% as the company accelerates an unconventional plan to raise capital exclusively to buy and hold more Bitcoin. The company announced multibillion-dollar acquisitions of cryptocurrency on every Monday for the past five weeks.
With the token’s price reaching all-time highs recently, MicroStrategy now owns more than $40 billion worth of Bitcoin. However, its core business had a net loss of US$340 million in the third quarter of this year. Still, the company’s market capitalization of $98 billion, which would place it as roughly the 40th largest stock on the Nasdaq 100, is largely based on its Bitcoin buy-and-hold strategy, and this could influence whether the stock is added to the Nasdaq 100.
The Nasdaq could use the small size of MicroStrategy’s operating business as justification for not adding the company to the index, Vitanza said. However, this would be counterintuitive as the company’s market capitalization is very large, he added.
MicroStrategy’s software business offers a benefit when it comes to inclusion in the Nasdaq index, as financial companies are not eligible for the Nasdaq 100. MicroStrategy calls itself a “Bitcoin treasury company,” but since its revenue comes from its software business, it is classified as a technology company by the Industry Classification Benchmark (ICB), making its inclusion to the index worthwhile. The ICB may choose to reclassify MicroStrategy as a financial stock during its next review in March, according to Bloomberg Intelligence analyst James Seyffart.
Michael Lebowitz, manager at RIA Advisors, said MicroStrategy is now more like a commodity or an ETF, as it is “essentially a dead company” without its Bitcoin. He believes the company should be reclassified as a financial company next year.
“One hundred percent of the value of the company is Bitcoin because the rest of the company is potentially negative,” Lebowitz said in an interview. “The biggest part of the company is just purely its holdings in Bitcoin and the financial maneuvering around it, so it is a financial company.”
Still, if it is added to the index, it would “introduce the potential for large amounts of passive inflows into MicroStrategy shares and could give its stock a boost,” said analyst Mark Palmer of Benchmark, who also has a “buy” recommendation. for actions.
