Strategy has been named a candidate for the S&P 500 Index. What does this mean for investors?

The largest public bitcoin holder Strategy (formerly known as MicroStrategy) has unexpectedly found itself among the candidates for inclusion in the main U.S. stock index S&P 500, wrote Bloomberg. Quarterly earnings and market capitalization qualify the company to pass the formal criteria, but the benchmark operator will be interested in more than just numbers. What are the chances that Michael Saylor's company will be included in the index and where will it lead?

Strategy is considered a potential candidate for inclusion in the S&P 500, Bloomberg writes. A year ago it seemed incredible, but at the end of the last quarter the company formally met all the criteria for inclusion in the index. In addition, out of 26 applicants (including mobile advertising platform developer AppLovin, fintech service Robinhood and online retailer of used cars Carvana), Strategy's securities show the highest trading activity relative to its capitalization, Bloomberg writes.

To include new companies in the index, the S&P committee considers liquidity, profitability, trading history and industry balance sheet. Among the requirements are capitalization of $22.7 billion or more and positive earnings both in the most recent quarter and in the last four quarters.

S&P declined to comment to Bloomberg, saying the final decision rests with the committee. Strategy did not respond to the agency's request.

The likelihood that Strategy will be included in the main U.S. stock index is still Ma, Bloomberg notes. The company already entered the Nasdaq 100 technology index late last year, but the S&P 500 is a different level: the index tracks passive funds with $10 trillion in assets. Strategy CEO Michael Saylor previously said the company could get into the S&P 500 this year. However, the committee responsible for the stability of the index may be alarmed by several factors. For example, the high volatility of Strategy's stock. Over the past 30 days, swings have reached 96% - that's more than Nvidia (77%) and Tesla (74%).

Another "no" argument could be the large concentration of technology companies in the index. Strategy's $90 billion capitalization makes it a strong candidate for inclusion, but the committee is looking at more than just size. It wants to avoid skewing the index too much toward one industry, explained Macquarie Capital strategist Edward Yun. "Even meeting all the requirements doesn't guarantee inclusion," he emphasized, adding that the committee's decisions are increasingly difficult to predict.

At the same time, some analysts point out that despite the strong preponderance of tech companies, the committee still included cryptocurrency exchange Coinbase and fintech company Block in the index, which was a signal of recognition of digital assets. "When they included Coinbase, it was a strong signal: the committee intends to shape the representation of the industry. If a company is a major player in a segment, it's hard to ignore," said Stephens managing director Melissa Roberts (quoted by Bloomberg).

If the committee does decide to include Strategy in the index, the consequences will be great, Bloomberg emphasizes. According to Stephens' calculations, passive funds tracking the index will be forced to buy back about 50 million shares of the company for $16 billion at current prices. This could push quotes up due to the so-called index effect, Bloomberg explains. Previously, this effect was stronger, now it is expressed weaker, as investors are trying to anticipate changes in the composition of the S & P 500 in advance. However, in the long term, the growing popularity of index funds could support demand for Strategy securities.

For Michael Saylor, inclusion in the index would symbolize institutional recognition of his bitcoin accumulation strategy, which critics have called risky. At the same time, it would make pension funds and other large funds indirect holders of cryptocurrency.

In trading on September 4, Strategy shares were falling at the moment by almost 4% to the minimum since April. Pressure on quotes was put by the news that the Nasdaq exchange is tightening requirements for companies buying cryptocurrency for reserves.

Still, Strategy's market value is up 12.6% since the beginning of the year, outperforming the S&P 500. Nearly 88% of analysts tracking the company still recommend investors buy its stock, according to MarketWatch. Wall Street's average target price is $564.2 per paper, which would suggest the company's stock price is up another 70% from its closing price on Sept. 3.

This article was AI-translated and verified by a human editor