(Bloomberg) — MicroStrategy Inc., the dot-com-era software maker whose pivot to a backed bet on bitcoin sent Wall Street into a tizzy, is joining the Nasdaq 100, the index’s supervisor said Friday. Software company Palantir Technologies Inc. will also be added. and Axon Enterprise Inc., a manufacturer of Tasers and police cameras.
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Illumina Inc. companies will be removed. and Super Micro Computer Inc. and Moderna Inc. of the Nasdaq 100. The changes will be effective before the market opens on Monday, December 23.
The decision to add MicroStrategy, announced by the Nasdaq Global Indexes late Friday, represents a major seal of institutional approval for its founder Michael Saylor, whose disdain for Wall Street convention helped spur a 500% rally in his 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 has gained popularity and become exponentially more valuable since it began collecting bitcoin deliveries in 2020.
Gains averaging more than 40% over the past three months have pushed the company’s market capitalization to nearly $100 billion, more than half that of the Nasdaq 100 members, which meets a key prerequisite for membership. With the rise in value also came extreme volatility — stocks swung about five times as much as the Nasdaq over the period — a trait that could add turmoil to the benchmark index itself given its potential weight.
“Adding MicroStrategy offers the potential to really increase volatility. It’s not only the most volatile of the new entrants — and Palantir is no slouch, by the way — but it’s essentially a leveraged play on Bitcoin,” said Steve Sosnick, chief strategist at Interactive Brokers. “Then keep in mind that Bitcoin is closely related to the 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 buy and hold the cryptocurrency. It has announced multibillion-dollar acquisitions every Monday for the past five weeks, and they have risen along with the price of the token — raising questions in some circles about the sustainability of the strategy.
MicroStrategy’s inclusion in the index could have bullish implications for Bitcoin itself, which quickly jumped more than 1% after the news was announced. Besides selling convertible bonds, Saylor raised billions of dollars to finance the purchase of cryptocurrencies by issuing new shares on the market. These sales could become easier if investors tracking indices become a source of near-term demand.
MicroStrategy posted a third straight quarterly loss after taking an impairment charge against the value of its roughly $18 billion cryptocurrency stock. Third-quarter revenue from the software business fell 10% below expectations.
Palantir’s listing highlights tailwinds from artificial intelligence, which have sent the stock soaring 343% this year. This is also another milestone for a company that makes data analytics tools for businesses and governments after it was added to the S&P 500 index in September.
The company, co-founded by billionaire Peter Thiel, announced better-than-expected quarterly revenues for the third quarter and raised its operating income forecast for the current period, citing high demand in the United States for its artificial intelligence programs.
Palantir has earned 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 up 150% year to date. The Scottsdale, Arizona-based company reported better-than-expected third-quarter earnings and raised its full-year revenue forecast. Investors and analysts have been bullish on its new suite of AI-powered software, including Draft One, which can produce written reports from audio transcripts taken from police cameras.
The Nasdaq 100 index includes the largest non-financial companies listed on the Nasdaq Stock Exchange. There is no minimum market capitalization requirement to be eligible for listing, 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 liquidity for stock trading, a lower cost of capital and increased visibility by investors. Furthermore, securing a place in the coveted Nasdaq 100 index enhances an investor’s image of a company and adds to trading liquidity – factors that can drive 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 must own all of their members’ stocks. Actively managed funds against which it is benchmarked should also buy shares.
About $451 billion of ETFs worldwide directly track the Nasdaq 100, Bloomberg Intelligence’s James Seyphart wrote in a recent note, and at least $22 billion in purchases across 19 different stocks by ETFs around the world. It will occur when the indicator regains its balance. His calculations show that the addition of Palantir, MicroStrategy, and Axon would likely fuel at least $3.8 billion, $2.1 billion, and $1.3 billion in purchases, respectively.
The Nasdaq 100 is up 30% this year as big-ticket technology stocks surged higher. By comparison, the S&P 500 rose 27%, while the Dow Jones Industrial Average rose 17%.
–With assistance from Emily Graffeo, Monique Molema, and Carmen Reineke.
(Updates to strategy comment in fifth paragraph)
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