The Nasdaq 100 adjustment is imminent, can Bitcoin "whales" MicroStrategy achieve their wishes?

According to the Zhitong Finance APP, Nasdaq will announce the annual index adjustment results on December 13 (Friday). MicroStrategy (MSTR.US) meets all the conditions to be included in the Nasdaq 100 Index, and this development will trigger the purchase of the company's stock by exchange-traded funds (ETFs) globally that directly track this index, which has a scale of $451 billion.

However, market observers believe that MicroStrategy may be excluded from the index annual adjustment on Friday for a simple reason: MicroStrategy has turned into a leveraged bet on Bitcoin, and this software company does not qualify to be among the most important 100 stocks on Nasdaq.

Betting on Bitcoin Sparks Controversy

TD Cowen analyst Lance Vitanza stated, "The idea of the index is that it should accurately represent all stocks in the stock market. Any large company that holds a significant position in the Nasdaq market should be included in the index." He has a "buy" rating on MicroStrategy.

MicroStrategy's stock price has soared over 500% this year, attracting Wall Street's attention. The company has accelerated an unconventional plan to raise funds to buy and hold more Bitcoin. Over the past five weeks, the company has announced spending billions of dollars on this cryptocurrency every Monday.

As Bitcoin prices have surpassed $100,000, setting new historical highs, MicroStrategy currently holds Bitcoin worth over $40 billion. However, its core business reported a net loss of $340 million in the third quarter of this year. Nevertheless, the company's $98 billion market capitalization is largely based on its strategy of buying and holding Bitcoin, which may affect whether the company is included in the Nasdaq 100 Index.

Vitanza noted that Nasdaq might exclude MicroStrategy from the index on the grounds that its operating business is relatively small. However, he added that doing so would be illogical given the company's large market capitalization.

MicroStrategy's software business provides an advantage for inclusion in the Nasdaq benchmark index, as financial companies are not eligible for the Nasdaq 100 Index. MicroStrategy claims to be a "Bitcoin financial company," but since its revenue comes from software business, it is classified as a technology company by the Industry Classification Benchmark (ICB), making it eligible for inclusion in the index. Bloomberg Intelligence analyst James Seyffart stated that in the next adjustment in March next year, the ICB may choose to reclassify MicroStrategy as a financial stock.

Michael Lebowitz, a portfolio manager at RIA Advisors, stated that MicroStrategy now resembles a commodity or ETF, as without Bitcoin, it "is essentially a bankrupt company." He believes the company should be reclassified as a financial company next yearLebowitz stated: "The company's value comes 100% from Bitcoin, as other parts of the company may be negative. Most of the company's assets are purely its holdings of Bitcoin and related financial operations, so it is a financial company."

What is the impact of being included in the index?

Nevertheless, Benchmark analyst Mark Palmer stated that if MicroStrategy is included in the Nasdaq 100 index, "a significant amount of passive funds may flow into MicroStrategy's stock, potentially boosting its share price." He also rated the stock as a "buy."

MicroStrategy aims to raise $42 billion over the next three years through the issuance of stocks and fixed-income securities, and it has already exceeded its equity financing target for 2025. Palmer noted that an increase in stock price after being included in the index would help MicroStrategy issue stocks at a premium and support its overall strategy of purchasing more Bitcoin.

TD's Vitanza mentioned that if MicroStrategy is included in the Nasdaq 100 index, the increase in stock trading volume may not significantly impact its liquidity but will attract new investors.

Joining the broader U.S. benchmark S&P 500 index is another matter. The S&P 500 index considers the profitability of new constituent companies, which may pose a hurdle for MicroStrategy, as the company has reported net losses in three of the past four quarters.

Vitanza stated: "It is not a traditional operating company, and this fact has a much greater impact on the S&P 500 index than on the Nasdaq 100 index."

For a long time, the distinction between the Nasdaq index and the S&P 500 index has been that it focuses on non-financial companies and only considers those listed on the Nasdaq. Nasdaq has also launched its own digital asset products, providing software platforms for cryptocurrency trading.

Reports indicate that Palantir (PLTR.US) and Axon Enterprise (AXON.US) may also be included in the Nasdaq 100 index. Changes to the index will take effect on December 23