(Bloomberg) -- MicroStrategy Inc., the dot-com-era software maker whose metamorphosis into a leveraged bet on Bitcoin has transfixed Wall Street, is joining the Nasdaq 100 Index, the benchmark’s overseer said Friday. Software company Palantir Technologies Inc. and Axon Enterprise Inc., a maker of Tasers and police body cameras, will also be added.
Illumina Inc., Super Micro Computer Inc. and Moderna Inc. will be removed from the Nasdaq 100. The changes will be effective prior to market open on Monday, Dec. 23.
The decision to add MicroStrategy, announced late Friday by Nasdaq Global Indexes, represents a major stamp of institutional acceptance for its controversy-courting founder, Michael Saylor, whose disdain for Wall Street convention has helped spur a 500% rally in its shares this year and made him a hero to Bitcoin bulls. The company started out as a maker of enterprise analytics software more than three decades ago but gained renown and became vastly more valuable since it started amassing Bitcoin hand-over-fist in 2020.
Gains averaging more than 40% over the last three months pushed the company’s market value to almost $100 billion, more than about half the Nasdaq 100’s members, satisfying a key prerequisite for membership. With the appreciation has also come extreme volatility — the shares have swung about 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 possibility for truly increased 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 the 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 purchase and hold the cryptocurrency. It has announced multibillion-dollar acquisitions every Monday over the past five weeks, surging along with the token’s price — and raising questions in some circles about the strategy’s sustainability.
MicroStrategy’s inclusion in the index may have bullish implications for Bitcoin itself, which quickly jumped more than 1% after the news was announced. Besides selling convertible bonds, Saylor has raised billions of dollars to fund his crypto buying by issuing fresh stock into the market. Those sales could become easier should index-tracking investors become a near-term source of demand.
MicroStrategy posted a third consecutive quarterly loss after taking an impairment charge against the value of its roughly $18 billion stockpile of the cryptocurrency. Third-quarter revenue from its software business fell 10% below forecasts.
Palantir’s inclusion highlights the tailwinds from artificial intelligence, which pushed the stock to a blistering 343% rally this year. It is also another milestone for a company that makes data analysis tools for companies 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 forecast for operating income in the current period, citing high demand in the US 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 by allied forces in Ukraine and Israel.
Meanwhile, Axon is also having a great year, with its stock surging 150% year-to-date. The Scottsdale, Arizona-based company reported better-than-expected third-quarter profit and raised its full-year revenue forecast. Investors and analysts have been bullish on its new bundle of AI-powered software, including Draft One, which can produce written reports from audio transcriptions taken from police body-cams.
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 increased equity trading liquidity, a lower cost of capital and heightened visibility from investors. Furthermore, a spot in the coveted Nasdaq 100 boosts a firm’s investor profile and adds to trading liquidity — factors that can potentially propel a company’s stock price.
Many large index funds, like the $320 billion Invesco QQQ Trust Series 1 exchange-traded fund, track the Nasdaq 100 and must own all of its members’ shares. And actively managed funds that are benchmarked against it have to buy the stocks as well.
Some $451 billion in 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 buying across 19 different stocks by ETFs around the world will occur when the index rebalances. The addition of Palantir, MicroStrategy and Axon will potentially fuel at least $3.8 billion, $2.1 billion, and $1.3 billion of purchases, respectively, his calculations show.
The Nasdaq 100 is up 30% this year as mega-cap technology shares lift the index. By comparison, the S&P 500 has gained 27%, while the Dow Jones Industrial Average has risen 17%.
--With assistance from Emily Graffeo, Monique Mulima and Carmen Reinicke.
