(Bloomberg) — MicroStrategy Inc., the dot-com-era software maker whose metamorphosis into a leveraged bet on Bitcoin has fixated Wall Street, is joining the Nasdaq 100 Index, the benchmark’s regulator said Friday. Software company Palantir Technologies Inc. and Axon Enterprise Inc., a maker of Tasers and police body cameras, will also be added.
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Illumina Inc., Super Micro Computer Inc. and Moderna Inc. will be removed from the Nasdaq 100. The changes will come into effect before the market opens on Monday, December 23.
The decision to add MicroStrategy, announced late Friday by Nasdaq Global Indexes, represents a major stamp of institutional acceptance for its controversial founder, Michael Saylor, whose disdain for the Wall Street convention has helped fuel a rally of 500 this year % in its shares. made him a hero for Bitcoin bulls. The company started out more than thirty years ago as a maker of business analytics software, but rose to prominence and became much more valuable since it started manually accumulating Bitcoin in 2020.
Gains averaging more than 40% over the past three months pushed the company’s market value to nearly $100 billion, more than about half of Nasdaq 100 members, meeting a key requirement for membership. With the valuation has also come extreme volatility – the shares have fluctuated about five times as much as the Nasdaq index over the period – a feature that could cause unrest for the benchmark itself, given its likely weighting.
“Adding MicroStrategy offers the opportunity for truly increased volatility. Not only is it the most volatile newcomer – Palantir is no slouch by the way – but it is essentially leverage on Bitcoin,” said Steve Sosnick, chief strategist at Interactive Brokers. “Then consider that Bitcoin is highly correlated with NDX, except with more volatility.”
Shares of the Tysons Corner, Virginia-based company have become a major investment story this year by surging more than 500% as it accelerated an unconventional plan to raise capital solely to buy and hold the cryptocurrency. It has announced multi-billion dollar acquisitions every Monday for the past five weeks, rising along with the token’s price — and raising questions in some quarters about the strategy’s sustainability.
MicroStrategy’s inclusion in the index could have bullish implications for Bitcoin itself, which quickly rose more than 1% after the news was announced. In addition to selling convertible bonds, Saylor has raised billions of dollars to finance his crypto purchases by issuing new shares in the market. These sales could become easier if investors tracking indexes became a source of demand in the near term.
MicroStrategy posted a third straight quarterly loss after taking an impairment on the value of its inventory of about $18 billion in cryptocurrency. Revenue from the software activities in the third quarter fell 10% below expectations.
Palantir’s inclusion highlights the tailwind from artificial intelligence, which has pushed the stock to a blistering 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.
The company, co-founded by billionaire Peter Thiel, reported better-than-expected quarterly revenue for the third quarter and raised its forecast for operating income in the current period, citing strong U.S. demand for its artificial intelligence software.
Palantir built its reputation on working with the U.S. national intelligence community and is now used across all U.S. military branches and by allied forces in Ukraine and Israel.
Meanwhile, Axon is also having a great year, with shares up 150% this year. The Scottsdale, Arizona-based company reported better-than-expected third-quarter earnings and raised full-year revenue guidance. Investors and analysts are optimistic about the new bundle of AI-powered software, including Draft One, which can produce written reports based on audio transcripts taken from police body cameras.
The Nasdaq 100 includes the largest non-financial companies listed on the Nasdaq stock exchange. There is no minimum market capitalization requirement to qualify for inclusion, but shares must have an average daily trading volume of at least 200,000 shares, among other requirements.
Participation in the index can benefit a company by providing greater liquidity in stock trading, lower costs of capital and greater investor visibility. Additionally, a spot on the coveted Nasdaq 100 increases a company’s investor 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 are required to own all of its members’ shares. And actively managed funds that are benchmarked to it should also buy the shares.
About $451 billion worth of ETFs around the world directly track the Nasdaq 100, Bloomberg Intelligence’s James Seyffart wrote in a recent note, and at least $22 billion of purchases in 19 different stocks by ETFs around the world will occur when the index returns. equilibrium is achieved. The addition of Palantir, MicroStrategy and Axon will potentially boost at least $3.8 billion, $2.1 billion and $1.3 billion in purchases respectively, his calculations show.
The Nasdaq 100 is up 30% this year as mega-cap tech stocks lift the index. By comparison, the S&P 500 is up 27%, while the Dow Jones Industrial Average is up 17%.
–With help from Emily Graffeo, Monique Mulima and Carmen Reinicke.
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