(Bloomberg) — MicroStrategy, the dot-com era software maker that transfixed Wall Street with its transformation into a leveraged bet on Bitcoin, will join the Nasdaq 100 index, the benchmark’s regulator said Friday. Announced. Software company Palantir Technologies and Taser and police body camera maker Axon Enterprises will also join.
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Illumina Inc., Super Micro Computer Inc., and Moderna Inc. are excluded from the Nasdaq 100. Changes will take effect before the market opens on Monday, December 23rd.
The Nasdaq Global Index’s decision to add MicroStrategy Inc., announced late Friday, was a major sign that controversial founder Michael Saylor has been accepted by institutional investors. His disdain for Wall Street conventions helped fuel a 500% rise in the company’s stock this year. He became a hero to Bitcoin bulls. The company started more than 30 years ago as a maker of enterprise analytics software, but since it started amassing funds in Bitcoin hands in 2020, it has gained fame and increased in value significantly.
With gains averaging more than 40% over the past three months, the company’s market value has reached nearly $100 billion, reaching more than half of the Nasdaq 100 membership and meeting key membership prerequisites. As stock prices rise, extreme volatility has also occurred, with stock prices fluctuating approximately five times as much as the Nasdaq index over a span of time, but this characteristic has the potential to cause confusion in the benchmark itself, given its relative weight. be.
“Adding MicroStrategy could really increase volatility. Not only is it the most volatile of the new entrants, but by the way Palantir is no slouch either, it is essentially a leveraged version of Bitcoin. Steve Sosnick, chief strategist at Interactive Brokers, said. “And consider that Bitcoin has a high correlation with NDX, except with greater volatility.”
The Tysons Corner, Virginia-based company’s stock has soared more than 500% this year, making it a major investment story as it accelerates an unusual plan to raise capital solely to buy and hold cryptocurrencies. . It has announced multibillion-dollar acquisitions every Monday for the past five weeks, soaring along with the price of its tokens, raising questions in some circles about the sustainability of the strategy.
MicroStrategy’s inclusion in the index could have a bullish impact on Bitcoin itself, which soared more than 1% shortly after the news was announced. In addition to selling convertible bonds, Saylor raised billions of dollars to fund crypto purchases by issuing new shares to the market. Such sales could become easier if investors who track the index become a source of short-term demand.
MicroStrategy posted its third straight quarterly loss after taking an impairment charge on the value of its cryptocurrency inventory of approximately $18 billion. Third-quarter sales for the software business were 10% lower than expected.
Palantir’s hiring underscores the artificial intelligence tailwind that has propelled the stock to a blistering 343% rise this year. Its addition to the S&P 500 in September is another milestone for the company, which makes data analysis tools for businesses and governments.
The company co-founded by billionaire Peter Thiel reported better-than-expected quarterly sales in the third quarter and cited strong demand for its artificial intelligence software in the U.S. The company raised its profit forecast.
Palantir built a reputation working with the U.S. national intelligence community and is now used by all U.S. military branches and allied forces in Ukraine and Israel.
Meanwhile, Axon is also having a great year, with its stock soaring 150% since the beginning of the year. The Scottsdale, Arizona-based company reported better-than-expected third-quarter profits and raised its full-year revenue forecast. Investors and analysts are bullish on a new bundle of AI-powered software, including Draft One, which can generate written reports from audio transcripts obtained from police body cameras.
The Nasdaq 100 is comprised of the largest non-financial companies listed on the Nasdaq Stock Exchange. There is no minimum market capitalization requirement to qualify, but conditions include a stock’s average daily trading volume of at least 200,000 shares.
Participation in an index benefits companies by increasing the liquidity of stock trading, lowering the cost of capital, and increasing visibility from investors. Additionally, entry into the coveted Nasdaq 100 increases a company’s investor profile and increases trading liquidity. This is a factor that can push up 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. Actively managed funds that use that as a benchmark will also need to buy stocks as well.
James Seifert of Bloomberg Intelligence said in a recent note that approximately $451 billion of ETFs around the world track the Nasdaq 100 directly, and at least 220 in 19 different stocks by ETFs around the world when the index rebalances. It says that there will be a billion dollar purchase. According to his calculations, the additions of Palantir, MicroStrategy and Axon could increase acquisition value by at least $3.8 billion, $2.1 billion and $1.3 billion, respectively.
The Nasdaq 100 has risen 30% this year as mega-cap technology stocks lift the index. By comparison, the S&P 500 rose 27% and the Dow Jones Industrial Average rose 17%.
–With assistance from Emily Graffeo, Monique Mulima, and Carmen Reinicke.
(Updated strategist’s comment in 5th paragraph)
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