- MicroStrategy’s meteoric rise off the back of its Bitcoin investment strategy means it may enter the Nasdaq 100 index when the list is updated in a few days.
- Some say the company shouldn’t be eligible though as it’s now a finance company, not a software company and finance stocks aren’t included in the index.
- According to Bloomberg ETF analysts though, it’s likely MicroStrategy will be included in the index as it’s currently classified as a tech stock and that can’t change until March next year.
Is Michael Saylor’s MicroStrategy still really a software company, or has it become a poorly disguised finance company? That’s the subject of some debate in crypto circles this week.
‘Why is this question important?’ you may be asking yourself. Well, if MicroStrategy is deemed to have become a finance company it’ll be ineligible for inclusion in the Nasdaq 100 index, which is due to be updated at the end of this week.
Being left out of the index could be a big deal for the company, as inclusion in indices usually means a significant uptick in in-flows through index funds and ETFs, which translates to an increased share price.
Some say it’s a no-brainer, MicroStrategy should be included in the updated Nasdaq 100. These people say it meets all the criteria, including not being a finance company, and it’s one of the top 100 Nasdaq-listed companies by market cap, so it should be in the index. This is the position of TD Cowen analyst, Lance Vitanza, who told Bloomberg:
The idea of an index is it’s supposed to really represent faithfully the body of stocks that are in the universe, any large company that makes up a material portion of [the] Nasdaq universe should be reflected as being in the index.
Lance Vitanza, TD Cowen analystRelated: MicroStrategy’s Risky Bet: $2.1 Billion More in Bitcoin Amid Market Volatility Concerns
Inclusion In the Nasdaq 100 Could Lift Share Price
The value of MicroStrategy nowadays is all tied up in its huge Bitcoin holdings leading some market watchers to suggest the company should be re-categorised as a finance company and excluded from the index. But technically MicroStrategy remains a software company — even if it creates some kind of software that nobody really cares about anymore, and this part of the business is actually operating at a loss.
Art Hogan, chief market strategist at B. Riley Wealth Management, explained to Reuters that,”MicroStrategy seems to check all the boxes to make it into the Nasdaq 100 when it is reconstituted in December.”
If MicroStrategy were to be included in the index it could boost the share price substantially, with over US$450 billion (AU$701 billion) worth of ETFs globally investing in the Nasdaq 100 index. Speaking to Bloomberg, Benchmark analyst Mark Palmer explained that the company’s inclusion would “introduce the potential for very large amounts of passive inflows into MicroStrategy shares and could provide a boost to its stock.”
The Case Against: MicroStrategy Is Now a Bitcoin ETF
Those who argue MicroStrategy shouldn’t be included in the index point to evidence such as that the software arm of the business made a US$34 million (AU$53 million) loss through Q3 of 2024.
Speaking to Bloomberg, Michael Lebowitz, a portfolio manager at RIA Advisors, described MicroStrategy as more like an ETF than a regular tech company and said it’s “essentially a dead company” outside of its Bitcoin holdings, adding that it should be reclassified as a financial company:
One hundred percent of the value of the company is Bitcoin because the rest of the company is potentially a negative. A large majority the company is just purely its Bitcoin holdings and the financial machinations around it, so it is a financial company.
Michael Lebowitz, Portfolio manager at RIA AdvisorsAccording to Bloomberg’s Senior ETF analyst, Eric Balchunas, all this worry about what kind of company MicroStrategy is may not mean much for now, though. He explained that companies are classified by the Industry Classification Benchmark (ICB) and the ICB won’t be updating their classifications until March next year. Whereas the Nasdaq 100 will be updated in just a few days (the ETFs which track the index, like QQQ, will be updated in the weeks following).
So despite the doubts about MicroStrategy — at least officially — it’ll still be considered a software company and will be eligible for inclusion in the index.
Related: MSTR Adds to BTC Stash as Saylor Makes Bitcoin Pitch to Microsoft
Bulchunas’ colleague at Bloomberg, James Seyfartt also weighed in on the issue, saying as it stands now MicroStrategy will likely be included in the index:
Credit: Source link
