With MicroStrategy joining the Nasdaq 100, analysts weigh what's next for the corporate bitcoin holder
Business intelligence firm MicroStrategy (ticker MSTR) will officially join the Nasdaq 100 index on Monday, Dec. 23, 2024 — the first bitcoin-focused company to enter the index. This will give the corporate bitcoin holder exposure to billions of dollars in passive flows into the 13 exchange-traded funds that track the Nasdaq 100.
This index includes 100 of the largest non-financial companies listed on the Nasdaq stock market. Being part of the index could mean that a large amount of shares could be bought by ETFs that track the index with its annual rebalance each December.
The stock's inclusion comes as a result of the Nasdaq's yearly rebalancing, which is based largely on companies' market capitalizations on the last trading day in November. At that time, MicroStrategy had a market cap of around $92 billion, though at the time of publication, its market cap had eclipsed $102 billion.
Bloomberg analysts estimate it will get a 0.47% weight and be the 48th biggest holding in the index.
"This weighting equates to about $2.1b of buying via all the ETFs that track the index which have $451b collectively. We did not include SMAs or CITs or any active strategies so it could be a little more when all is said and done," Bloomberg senior ETF analyst Eric Balchunas said on X.
While many have cheered its corporate bitcoin strategy, the stock’s 530% year-to-date surge has baffled some financial pundits .
MSTR to the SP 500?
The company meets the SP 500’s criteria for minimum market cap and trading volume, but it does not currently meet two other requirements: positive earnings for the most recent quarter and total positive earnings for the sum of its trailing four consecutive quarters.
"While potential inclusion in the Nasdaq-100 represents a near-term opportunity for MSTR, its potential addition to the SP 500 represents an even bigger one in the medium-term," Benchmark equity analyst Mark Palmer wrote in a note to clients on Monday.
MicroStrategy has stated it plans to adopt new Financial Accounting Standards Board (FASB) guidance for the accounting treatment of bitcoin held on corporate balance sheets in the first quarter of 2025, Palmer said, which would position it to begin reporting positive earnings immediately.
MicroStrategy recorded $3.1 billion in cumulative impairment losses since it launched its bitcoin acquisition strategy in August 2020. Last December, FASB issued new guidance that allows companies that hold digital assets on their balance sheet to measure them at fair value and to record changes in fair value in net income in each reporting period. The new rule becomes effective as of Jan. 1, 2025.
"The upshot is that MSTR is positioned to record a one-time, multi-billion-dollar boost to its quarterly net income in 1Q25 that would be equal to the difference between the recorded value of the bitcoin carried on its books and its market value," Palmer said. "If that net income gain proves sufficient to produce a positive trailing 12-month figure when combined with the MSTR’s losses during the prior three quarters, then the company will have met the criteria for inclusion in the SP 500 ahead of the index’s second rebalancing of 2025, which is slated to occur on the third Friday of June."
Palmer reiterated a "buy" rating on MSTR with a price target of $650. Meanwhile, MicroStrategy said Monday it purchased another 15,350 bitcoin . The company now holds 439,000 BTC, worth over $45 billion.
“MSTR’s Bitcoin buying program is unprecedented on street, and makes it the largest corporate owner of Bitcoin (2% of supply equivalent to $44Bn market value),” Bernstein analyst Gautam Chhugani wrote Monday . “Inclusion in Nasdaq100 further improves MSTR’s market liquidity, further expanding its capital flywheel and Bitcoin buying program.”
Bernstein has an "outperform" rating on MSTR with a price target of $600.
"As MicroStrategy buys more bitcoin, the valuation premium normalises, with bitcoin stock (denominator) going up,” Chhugani wrote last week . “At 18% leverage levels (convertible debt to bitcoin NAV), MSTR has the room to issue more debt, apart from tapping its equity ATM. And if bitcoin’s price remains range bound around the $100K levels, we expect MicroStrategy to maintain its trajectory of bitcoin buying.”
Bitcoin hit a new all-time high on Sunday and is currently trading around $107,100, according to The Block's BTC price page.
