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MSTR’s Inclusion in QQQ Faces Variables
Technology Company or Financial Company?
How It Affects MicroStrategy
According to a previous report by Zombit, the U.S. publicly traded company MicroStrategy, known for its investment in Bitcoin, has met all the conditions for inclusion in the NASDAQ 100 Index. This could result in its incorporation into the ETF during this month’s annual rebalancing, triggering approximately $2.1 billion in stock acquisitions.
However, according to Bloomberg, market observers are contemplating the possibility that the company may be excluded from the annual rebalancing. This concern arises because MicroStrategy’s stock price has soared purely due to leveraged bets on Bitcoin, yet it remains a small software company, leading many to believe it should not be included in the NASDAQ 100.
In this regard, TD Cowen analyst Lance Vitanza advocates for MicroStrategy, stating that the index’s purpose is to authentically reflect the state of all stocks in the market, and he rates MicroStrategy as a “buy” because he believes any large company (including MicroStrategy) that occupies a significant portion of the NASDAQ market should be represented in the index.
Nevertheless, Lance Vitanza emphasizes that NASDAQ could still use “MicroStrategy’s small business size” as a rationale for not including it in the index.
Currently, MicroStrategy’s primary business is classified as a technology company, primarily focused on software, meeting the inclusion criteria for the NASDAQ 100 Index. However, Bloomberg intelligence analyst James Seyffart indicated that ICB may reclassify MicroStrategy as a financial stock in the next change in March of next year, which would be detrimental to MicroStrategy, as financial companies do not qualify for the NASDAQ 100.
Michael Lebowitz, a portfolio manager at RIA Advisors, stated that MicroStrategy now resembles a commodity or ETF, as it is essentially a company that “would die without Bitcoin.” He believes it should be reclassified as a financial company next year. Michael Lebowitz remarked during an interview:
“The company’s 100% value comes from Bitcoin, as the remainder could be negative. A significant portion of the company is its Bitcoin holdings and the financial operations surrounding it, so it is a financial company.”
If the company is included in the index, the increase in share trading volume may not significantly impact its liquidity, but it would attract new investors. TD Cowen analyst Lance Vitanza stated:
“If you consider the liquidity of this stock and the number of shares traded, it’s not a lot. But this will attract new funds, so I believe that ultimately, those who own this stock are clearly different from those who bought the stock at market price.”