(Bloomberg) — Michael Saylor’s MicroStrategy Inc. ticks all the boxes for inclusion in the Nasdaq 100 Index, a development that would lead to purchases of the stock by the $451 billion worth of exchange-traded funds around the world that directly track the benchmark.
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Still, market watchers are keeping in mind the possibility that this will be rejected during the annual index rebalancing on Friday, for one simple reason: MicroStrategy has turned into a levered bet on Bitcoin, tied to a small software company that many say has no business has and is among the 100 most important. shares on the Nasdaq.
“The idea of an index is that it should be a true representation of the entirety of stocks in the universe,” says TD Cowen analyst Lance Vitanza, who has a buy rating on MicroStrategy. “Any major company that makes up a substantial part of the Nasdaq universe should be included in the index.”
Shares of the Tysons Corner, Virginia-based company co-founded by Saylor have mesmerized Wall Street this year by surging more than 500% as the company accelerates an unconventional plan to raise capital solely to acquire more Bitcoin buy and keep. It has announced billion-dollar acquisitions of the cryptocurrency every Monday for the past five weeks.
With the token’s price recently hitting an all-time high, MicroStrategy now owns over $40 billion worth of Bitcoin. But the underlying business posted a net loss of $340 million in the third quarter of this year. Still, the company’s $98 billion market cap, which would make it roughly the 40th largest stock in the Nasdaq 100, is largely based on its Bitcoin buy-and-hold strategy, and this could impact whether it share is added to the Nasdaq 100. .
Nasdaq could use the small size of MicroStrategy’s operations as a reason not to add the company to the index, Vitanza said. However, that would be counterintuitive given the company’s market capitalization is so large, he added.
‘Bitcoin Treasury Company’
MicroStrategy’s software business gives it an advantage when it comes to inclusion in the Nasdaq benchmark, as financial companies are not eligible for the Nasdaq 100. MicroStrategy has called itself a ‘Bitcoin Treasury Company’, but since its revenue comes from the software operations, it is classified as a technology company by the Industry Classification Benchmark, making it fair game for the index. According to Bloomberg Intelligence analyst James Seyffart, the ICB could choose to reclassify MicroStrategy as a financial stock during the next change in March.