(Bloomberg) — MicroStrategy Inc., the dot-com-era software maker whose metamorphosis into a leveraged bet on Bitcoin has paralyzed Wall Street, will join the Nasdaq 100 index, the benchmark’s watchdog said Friday. Also being added are software company Palantir Technologies Inc. and Axon Enterprise Inc., a maker of Tasers and police body cameras.
Bloomberg’s Most Read
Illumina Inc., Super Micro Computer Inc. and Moderna Inc. will be removed from the Nasdaq 100. The changes will take effect before the market opens on Monday, December 23.
The decision to add MicroStrategy, announced late Friday by Nasdaq Global Indexes, represents a major seal of institutional acceptance for its controversial founder, Michael Saylor, whose disdain for Wall Street conventions has helped fuel a 500% rally in his shares this year and made him a hero for Bitcoin bulls. The company started out as a business analytics software maker more than three decades ago, but has gained popularity and become much more valuable since it began accumulating Bitcoin in droves in 2020.
Gains that have averaged more than 40% over the past three months have raised the company’s market value to nearly $100 billion, more than about half of the Nasdaq 100 members, satisfying a key prerequisite for membership. With the appreciation has also come extreme volatility: The stock has swung roughly five times as much as the Nasdaq index over the span, a trait that could add turbulence to the benchmark itself given its likely weighting.
“Adding MicroStrategy offers the potential for truly greater volatility. Not only is it the most volatile of the newcomers (Palantir is no slouch, by the way), but it is essentially a leveraged play on Bitcoin,” said Steve Sosnick, chief strategist at Interactive Brokers. “Then consider that Bitcoin is highly correlated with NDX except it has more volatility.”
Shares of the Tysons Corner, Virginia-based company have become a major investment story this year, surging more than 500% as it accelerated an unconventional plan to raise capital solely to buy and hold the cryptocurrency. It has announced multibillion-dollar acquisitions every Monday for the past five weeks, rising along with the token’s price and raising questions in some circles about the sustainability of the strategy.
MicroStrategy’s inclusion in the index may have bullish implications for Bitcoin itself, which quickly jumped more than 1% after the news was announced. In addition to selling convertible bonds, Saylor has raised billions of dollars to finance his cryptocurrency purchase by issuing new shares on the market. Those selling could become easier if index-tracking investors become a source of short-term demand.
MicroStrategy posted a third consecutive quarterly loss after taking an impairment charge on its roughly $18 billion in cryptocurrency reserves. Third-quarter revenue from its software business fell 10% below forecasts.
Palantir’s inclusion highlights the tailwinds of artificial intelligence, which have led the stock to a dizzying 343% rally this year. It’s also another milestone for a company that makes data analytics tools for businesses and governments after being added to the S&P 500 in September.
Co-founded by billionaire Peter Thiel, the company reported better-than-expected quarterly revenue for the third quarter and raised its operating income forecast in the current period, citing high U.S. demand for its artificial intelligence software.
Palantir built its reputation working with the US national intelligence community and is now used across all US military branches and allied forces in Ukraine and Israel.
Meanwhile, Axon is also having a great year, with its shares up 150% so far this year. The Scottsdale, Arizona-based company reported better-than-expected third-quarter earnings and raised its full-year revenue forecast. Investors and analysts have been bullish on its new AI-powered software suite, including Draft One, which can produce written reports from audio transcripts taken from police body cameras.
The Nasdaq 100 comprises the largest non-financial companies listed on the Nasdaq Stock Exchange. There is no minimum market capitalization requirement to be eligible for inclusion, but stocks must have an average daily trading volume of at least 200,000 shares, among other criteria.
Joining the index can benefit a company by providing greater liquidity for stock trading, a lower cost of capital, and greater visibility for investors. Additionally, a spot on the coveted Nasdaq 100 improves a company’s investment profile and increases trading liquidity, factors that can potentially boost a company’s stock price.
Many large index funds, such as the $320 billion Invesco QQQ Trust Series 1 exchange-traded fund, track the Nasdaq 100 and must own all of their members’ stocks. And actively managed funds that compare to it also have to buy shares.
Some $451 billion in ETFs worldwide directly track the Nasdaq 100, Bloomberg Intelligence’s James Seyffart wrote in a recent note, and at least $22 billion in ETF purchases of 19 different stocks worldwide are will occur when the index rebalances. The addition of Palantir, MicroStrategy and Axon will potentially drive at least $3.8 billion, $2.1 billion and $1.3 billion in purchases, respectively, their calculations show.
The Nasdaq 100 is up 30% this year as mega-cap tech stocks lift the index. In comparison, the S&P 500 has gained 27%, while the Dow Jones Industrial Average is up 17%.
–With the help of Emily Graffeo, Monique Mulima and Carmen Reinicke.
(Updates the strategist’s comment in the fifth paragraph)
