Get ready for the boom. In just two days, MicroStrategy (NASDAQ:MSTR) stock, which is already up 500% in 2024, could pad its incredible performance.
The company, which is nominally a data analytics firm, but really just a Bitcoin (CRYPTO:BTC) buying operation, could be added to the Nasdaq 100 index later this month. Because its market capitalization has witnessed a 53-fold increase over the past five years, rising from $1.6 billion in 2019 to over $84 billion today, it is now one of the top companies that will likely be added when the Nasdaq exchange performs its annual reconstitution of the index.
The committee met at the end of November and will announce its decision Dec. 13. The actual inclusion date is the first trading day after the third Friday of the month, or Dec. 23. While that will spur some $550 billion worth of buying power from exchange-traded funds (ETF) that track the index, such as the Invesco QQQ Trust Series (NASDAQ:QQQ), meaning they will have to buy MSTR stock to match the index, expect retail investors to rush in on Friday when the announcement is made.
24/7 Wall St. Insights:
- MicroStrategy (MSTR) has been an incredible investment with the stock rocketing 2,450% over the past five years.
- Driven by a Bitcoin (BTC) acquisition strategy, the data analytics firm says it is becoming a “Bitcoin Treasury Company.”
- Although investors are hoping it gets added to the Nasdaq 100 index this month, MSTR’s bitcoin policy could upend those plans.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
A buying frenzy on tap
Bloomberg ETF analysts Eric Balchunas and James Seyffart recently posted on X that MicroStrategy will probably be the 40th biggest position in the Nasdaq 100, garnering a 0.47% index weighting.
It is a fairly monumental inclusion if it happens. While stocks are added and removed all the time, MicroStrategy’s bitcoin play means that QQQ investors will get exposure to the cryptocurrency. Moreover, because all of the funds following the index will have to buy, both MSTR stock and Bitcoin itself will get pumped simply through passive investing.
The question is, just how much it will move the stock. While the ETFs have substantial funds at play, MicroStrategy’s weighting in the index will be a limiting factor. It may be about just $2 billion worth of buying that occurs.
Still, pouring $2 billion into MSTR shares does not equate to a simple one-for-one increase in its market cap. There is likely to be a multiplier effect that could boost MicroStrategy’s valuation — along with Bitcoin’s own valuation — much higher.
But before you rush out and buy MSTR stock, all this might not happen.
A wrench in the system
As noted at the beginning of the article, MicroStrategy is nominally a data analytics company. That was its core business and it still functions in that regard. However, because it has turned itself into a bitcoin proxy due to the purposeful buying of the crypto by CEO Michael Saylor, it just might be classified as a “financial” stock.
According to the Nasdaq exchange’s rules, finance companies are excluded from the index. The express purpose of the Nasdaq 100 is to measure the performance of 100 of the largest Nasdaq-listed non-financial companies (real estate investment trusts (REITs), special purpose acquisition companies (SPACS), and “when-issued” stocks are also excluded). Saylor has described MicroStrategy as a “Bitcoin Treasury Company.”
Earlier this week, MicroStrategy announced it owned over 423,650 bitcoin, or over 2% of the world’s total bitcoin supply. During the earnings conference call at the end of October, Saylor said that between 2025 and 2027 planned to raise $42 billion of capital, split equally between equity capital and convertible debt, primarily to acquire more bitcoin.
Key takeaway
Although that may work for MicroStrategy and Bitcoin, it could end up working against the company’s inclusion in the Nasdaq 100 index.
If the exchange still views MSTR as a business application software firm, then investors could see shares soar. But they might recognize its transition into a financial company and that could upend what many investors are expecting. Buying in ahead of the official announcement is a calculated risk.
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