TD Cowen analyst: Nasdaq may not include MicroStrategy in the Nasdaq 100 due to its small scale of operations

Michael Saylor’s MicroStrategy Inc has all the makings of a Nasdaq 100 Index. However, market watchers believe the company could be excluded from Friday’s annual index reshuffle because MicroStrategy has evolved into a leveraged Bitcoin bet for a small software company that many believe doesn’t qualify for inclusion among the 100 most important Nasdaq stocks. “The idea of ​​the index is that it should be a true representation of all the stocks in the stock market, and any large company that has a significant presence in the Nasdaq should be included,” said TD Cowen analyst Lance Vitanza, who has a “buy” rating on MicroStrategy. With bitcoin prices recently hitting record highs, MicroStrategy now holds more than $40 billion worth of bitcoin. But its underlying business posted a net loss of $340 million in the third quarter of this year. Still, the company’s $98 billion market cap, which makes it the 40th-largest stock in the Nasdaq 100, is based largely on its buy-and-hold strategy for bitcoin, which could affect whether the stock is included in the Nasdaq 100. Vitanza said Nasdaq could use MicroStrategy’s small operations as a reason not to include it in the index. But he added that it would be counterintuitive because the company is so large. Michael Lebowitz, a portfolio manager at RIA Advisors, said MicroStrategy is now more like a commodity or ETF because without bitcoin, it’s “basically a defunct company.” He thinks it should be reclassified as a financial company next year. "100% of the value of the company is Bitcoin, because the rest of the company is probably negative," Lebowitz said in an interview. "The vast majority of the company is just its Bitcoin holdings and the financial conspiracy around it, so it's a financial company." Vitanza also said that if the company is included in the index, the increase in trading volume of its shares may not have a big impact on its liquidity, but it will attract new investors. Joining the broader U.S. benchmark index, the S&P 500, is another matter. The index considers the profitability of newly added companies, which may be a hurdle for MicroStrategy, which has reported net losses in three of the past four quarters. "The fact that they are not a traditional operating company in our traditional sense, I think, will have a much greater impact on the S&P 500 than the Nasdaq 100," Vitanza added. (Bloomberg)