MicroStrategy’s (MSTR) Nasdaq-100 Entry May Pave Way for S&P 500 Inclusion: Benchmark

The software company's potential addition to the S&P 500 index could be an even larger opportunity in the medium-term, the report said.

What to know:

• MicroStrategy's addition to the Nasdaq-100 could lead to S&P 500 inclusion, which would be an even larger opportunity, the report said.
• Benchmark said MicroStrategy currently meets some of the criteria for S&P 500 inclusion, but not all of them.
• The company could meet the remaining requirements to join the index once it adopts new FASB accounting guidance, the broker said.

The analyst who co-wrote this piece owns shares of MicroStrategy (MSTR).

MicroStrategy's (MSTR) addition to the Nasdaq-100 index is a big deal, but its potential inclusion in the U.S's S&P 500 index could be an even bigger opportunity in the medium-term, broker Benchmark said in a report Monday.

The index provider announced on Friday that MicroStrategy would be added to the Nasdaq-100 on December 23.

The company founded by Michael Saylor easily meets S&P 500 inclusion criteria in terms of market cap and trading volume, but currently does not meet two other requirements, the report said.

The company needs to report positive earnings for the most recent quarter and "total positive earnings for the sum of its trailing four consecutive quarters," analyst Mark Palmer wrote.

Still, MicroStrategy has said that it plans to adopt new Financial Accounting Standards Board (FASB) guidance for the accounting treatment of bitcoin held on its balance sheet in the first quarter 2025, Benchmark said, and this "would position it to immediately begin reporting positive earnings."

MicroStrategy became the first bitcoin company to enter the Nasdaq-100, and will be the 40th largest firm in the index, with a 0.47% weighting, broker Bernstein said in a report on Monday.

How big is the impact?

MicroStrategy entering the Nasdaq-100 is a big milestone for the stock as the fifth largest ETF by assets under management (AUM), the Invesco QQQ Trust Series ETF, will add to the company to its index along with many others.

According to VettaFi data, the three largest ETFs by AUM are all comprised of the S&P 500. These are the SPDR S&P 500 (SPY), Vanguard S&P 500 (VOO) and iShares Core S&P 500 (IVV). Collectively these three ETFs hold over $1.8 trillion in AUM.

The enormous impact of entering the S&P 500 could be seen with Tesla (TSLA) which saw its stock surge following its inclusion in the index on Dec. 21 2020. The stock doubled in the space of a year from $200 to $400 a share. The lion's share of the gains came before inclusion to the S&P 500, which saw the stock run up 10-fold from December 2019. This could suggest a large portion of MicroStrategy gains could come before it joins the benchmark index.

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