Analysts have noted that bitcoin-holding giant Strategy (MSTR.US) risks being excluded from the Nasdaq 100 index during its annual rebalancing on Friday, citing concerns over its business model, which has weighed on its stock price. Originally a software company, Strategy pivoted to bitcoin investments in 2020. Earlier this year, its market capitalization peaked at $128 billion amid a rally before being added to the Nasdaq 100's tech subcategory in December. This decision drew skepticism from market observers who argued its pioneering model—which spawned dozens of imitators—resembles an investment fund more than a traditional business.
Strategy reported a net profit of $2.78 billion for the quarter ending September 30, compared to a $340.2 million loss a year earlier, largely due to an accounting change allowing it to recognize gains from bitcoin holdings. Meanwhile, its legacy software business generated just $128.7 million in revenue.
Steve Sosnick, chief market strategist at Interactive Brokers, stated, "If Strategy is viewed as a holding company or crypto firm rather than a software business, it becomes vulnerable to removal." The Nasdaq 100 tracks the largest non-financial companies by market cap, and Nasdaq Inc. declined to comment ahead of Friday's announcement. Reports in September indicated Nasdaq has tightened requirements for listed digital asset reserve firms, though the exchange typically does not comment on index inclusion practices. Strategy did not respond to requests for comment.
Index rebalancings are closely watched as they determine which companies benefit from billions in passive investor flows. However, Strategy founder Michael Saylor has downplayed removal concerns, and some analysts expect Nasdaq to retain the stock.
Doubts over digital asset reserve models have grown, with such stocks proving highly sensitive to bitcoin volatility. Strategy shares have fallen 65% from their 2024 peak and 36% year-to-date, while bitcoin is down 3.6% this year. As of Thursday, Strategy's market cap stood at $52.7 billion, below the $61 billion value of its bitcoin holdings.
Mike O’Rourke, chief market strategist at Jones Trading, suggested that while market cap alone may not justify removal, Friday presents "a great opportunity for Nasdaq to correct last year’s mistake," given Strategy's initial inclusion on technical grounds. Keisha Shah, Jefferies’ head of index strategy, estimated a potential $1.6 billion passive outflow if Strategy is excluded.
Global index provider MSCI has expressed reservations about digital asset reserve firms in its benchmarks and will decide by January whether to remove Strategy and peers. Saylor told media this month that while engaging with MSCI, exclusion would be inconsequential.
Some analysts believe Strategy is safe due to its still-significant market cap. H.C. Wainwright’s Mike Colonnese doubts removal, noting Strategy is "larger than about 30 other Nasdaq 100 constituents."
Beyond Strategy, Jefferies estimates biotech firm Biogen, IT solutions provider CDW, and four other stocks may also exit the Nasdaq 100, as they rank among its smallest members by market cap per LSEG data. Retail giant Walmart ($932.7 billion market cap) is expected to miss inclusion due to its effective Nasdaq listing date (Dec. 8) falling after the Nov. 28 cutoff.
Nasdaq’s announcement is expected post-market Friday, with changes effective Dec. 22.
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