MicroStrategy's meteoric rise on the back of its Bitcoin investment strategy means it could enter the Nasdaq 100 index when the list updates in the next few days. However, some argue that the company should not be included because it is currently a financial company, not a software company, and financial stocks are not included in the index. But Bloomberg ETF analysts say MicroStrategy is likely to be included in the index because it is currently classified as a tech stock, which cannot be changed until next March.
Is Michael Saylor's MicroStrategy still really a software company, or has it become a poorly disguised financial company? This has been the subject of debate in crypto circles this week.
“Why is this question important?” you may be asking yourself. Now, if MicroStrategy is deemed to be a financial company, it will no longer be eligible for inclusion in the Nasdaq 100 Index, which will be updated this weekend.
Being removed from an index could be a big problem for the company, since index inclusion typically means a significant increase in inflows through index funds and ETFs, leading to higher stock prices.
MicroStrategy deserves to be in the latest Nasdaq 100, and some say MicroStrategy should be in the latest Nasdaq 100. These people say MicroStrategy meets all their criteria, including not being a financial company, and is one of the top 100 Nasdaq-listed companies by market capitalization. It should be in the index. This is the position of TD Cowen analyst Lance Vitanza, who told Bloomberg:
The idea behind an index is that it faithfully represents the stock market in the world, that is, the large companies that make up a significant portion of stock prices. [the] NASDAQ Universe should be reflected as included in the index.
Lance Vitanza, TD Cowen Analyst
Related: MicroStrategy's risky bet: Adds $2.1 billion to Bitcoin amid market volatility concerns
Inclusion in the Nasdaq 100 may lead to a rise in stock prices
MicroStrategy's current value is tied entirely to its vast Bitcoin holdings, with some market watchers suggesting the company should be reclassified as a financial company and removed from the index. But technically, MicroStrategy remains a software company. Even if you're building some kind of software that no one cares about anymore, this part of the business is actually operating at a loss.
“MicroStrategy appears to meet all the criteria to enter the Nasdaq 100 during the December reconstitution,” Art Hogan, chief market strategist at B. Riley Wealth Management, told Reuters. .
If MicroStrategy were to be included in the index, it would have the potential to significantly increase share prices, with more than US$450 billion (A$701 billion) worth of ETFs invested in the Nasdaq 100 index worldwide. Benchmark analyst Mark Palmer told Bloomberg that the company's inclusion “creates the potential for very large passive inflows into MicroStrategy stock, which could push the stock higher.”
Against: MicroStrategy is now a Bitcoin ETF
Those who argue that MicroStrategy should not be included in the index point to evidence such as the company's software division losing US$34 million (A$53 million) through the third quarter of 2024.
In an interview with Bloomberg, Michael Lebowitz, a portfolio manager at RIA Advisors, described MicroStrategy as more like an ETF than a typical tech company, saying it was “essentially a dead company” outside of its Bitcoin holdings. It added that it should be reclassified as a financial company. company:
The rest of the company is potentially negative, so 100 percent of the company's value is in Bitcoin. The company is a financial company, as most of it is purely about Bitcoin holdings and the financial intrigue surrounding them.
Michael Lebowitz, RIA Advisors Portfolio Manager
Those concerns about what kind of company MicroStrategy is may not mean much for now, said Eric Balchunas, senior ETF analyst at Bloomberg. He explained that companies are classified by the Industry Classification Benchmark (ICB), which will not update the classification until March next year. The Nasdaq 100, on the other hand, updates within just a few days (ETFs that track the index, such as QQQ, update within weeks).
For those who $MSTR It may not come in $QQQ Comparing financial stocks and tech stocks. That's a good point, but the ICB will decide that and decide it's a technology. The next review will be in March, so it will be much later. $QQQ Enclosure deadline is 2 weeks later https://t.co/Fnbm4x0BdJ
— Eric Balchunas (@EricBalchunas) December 11, 2024
So despite the doubts about MicroStrategy, at least officially, the company would still be considered a software company and eligible for inclusion in the index.
Related: MSTR added to BTC Stash as Saylor pitches Bitcoin to Microsoft
Burczunas' colleague at Bloomberg, James Seifert, also weighed in on the issue, saying MicroStrategy is likely to be included in the index as it stands.
My thoughts on MicroStrategy being reclassified as a financial stock, with predictions that Nasdaq will likely announce entry into the Nasdaq 100
(The rules indicate that $MSTR In our opinion *should* be added, but it's not official until Nasdaq announces it on Friday) pic.twitter.com/NCj96owSw5
— James Seyffert (@JSeyff) December 11, 2024
