Bloomberg has reported that MicroStrategy Inc., a company with roots in the dot-com era that has transformed into a significant player in the Bitcoin market, is set to join the Nasdaq 100 Index. This move, announced by the index’s overseer last Friday, also includes the addition of Palantir Technologies Inc., known for its software solutions, and Axon Enterprise Inc., which produces Tasers and police body cameras.
In contrast, companies like Illumina Inc., Super Micro Computer Inc., and Moderna Inc. will exit the Nasdaq 100, with changes taking effect before markets open on Monday, December 23rd. MicroStrategy’s inclusion marks a notable nod to its founder, Michael Saylor, who has become a notable figure in the Bitcoin community by challenging traditional Wall Street conventions. Over three decades, MicroStrategy evolved from a software provider to a Bitcoin-centric organization, and this shift has driven its shares up by 500% this year.
MicroStrategy’s stock has soared thanks to a 40% surge over the past three months, propelling its market value close to $100 billion, which exceeds that of half the Nasdaq 100 members. With this rise, it’s brought noticeable volatility, experiencing swings five times greater than the broader index. This level of fluctuation might introduce more instability to the Nasdaq 100, given MicroStrategy’s potential weighting.
Steve Sosnick, chief strategist at Interactive Brokers, remarked on MicroStrategy’s impact, saying, “The inclusion of MicroStrategy could significantly heighten volatility. While Palantir is also making waves, MicroStrategy’s stakes in Bitcoin essentially make it a leveraged bet on the cryptocurrency, which itself is already highly volatile.”
This year, the company’s shares, based in Tysons Corner, Virginia, have dramatically increased by over 500%. Their unusual strategy of securing capital to purchase Bitcoin has been gaining momentum, although it raises questions about how sustainable this approach is. This index inclusion could have bullish effects on Bitcoin, as the cryptocurrency surged more than 1% following the news. With funds raised by issuing convertible bonds and new stock, the influx of index-tracking investors might become a short-term demand source, further facilitating these transactions.
Still, MicroStrategy recorded a third consecutive quarterly loss, impacted by the devaluation of its $18 billion Bitcoin holdings, while its software business revenue fell short by 10% against forecasts. On the other hand, Palantir’s addition underscores the impact of artificial intelligence, with its stock gaining an impressive 343% this year. Recently added to the S&P 500, Palantir continues to thrive with better-than-expected revenue figures and increased operational income forecasts, driven by high demand for its AI offerings in the US market.
Palantir, co-founded by billionaire Peter Thiel, is well-regarded for its work with US intelligence agencies and has expanded its services to all branches of the US military, as well as allied forces in Ukraine and Israel. Meanwhile, Axon has seen a 150% stock increase this year. Headquartered in Scottsdale, Arizona, the company surpassed profit expectations for the third quarter and raised its revenue forecast for the full year, thanks in part to its new AI-powered software, including a tool for generating written reports from police body-cam audio transcriptions.
The Nasdaq 100 includes the largest non-financial entities on the Nasdaq exchange. While there isn’t a market capitalization minimum for entry, stocks must maintain an average daily trading volume of at least 200,000 shares, among other criteria.
Being part of this index provides companies with benefits like increased trading liquidity and visibility, potentially lowering capital costs and boosting stock profiles. Major index funds like the $320 billion Invesco QQQ Trust Series 1 ETF follow the Nasdaq 100 and are required to hold shares of its constituents, prompting actively managed funds with similar ties to buy these stocks as well.
Bloomberg Intelligence’s James Seyffart noted that roughly $451 billion in ETFs globally track the Nasdaq 100, forecasting that at least $22 billion worth of purchases across 19 stocks will occur when the index rebalances. With the inclusion of Palantir, MicroStrategy, and Axon, predictions suggest inbound buying of approximately $3.8 billion, $2.1 billion, and $1.3 billion respectively.
Currently, the Nasdaq 100 has gained 30% for the year, driven by large-cap tech stocks, while the S&P 500 rose by 27% and the Dow Jones Industrial Average saw a 17% increase.
Thanks to Bloomberg’s Emily Graffeo, Monique Mulima, and Carmen Reinicke for their contributions. (The strategist’s comments in the fifth paragraph have been updated.)
