Bernstein predicts MicroStrategy's momentum to further accelerate amid potential Nasdaq 100 inclusion

Analysts at research and brokerage firm Bernstein expect the MicroStrategy flywheel effect to continue, given the potential inclusion of the stock in the Nasdaq 100 index this month and the incoming Trump administration's dialling up of its crypto focus.

On Tuesday, Bloomberg analyst James Seyffart said MicroStrategy will likely enter the Nasdaq 100 on Dec. 23, potentially to be announced this Friday, with estimated net buying of at least $2.1 billion in shares by exchange-traded funds to follow. This is equal to about 20% of daily volume and a "conservative number" in Seyffart’s view.

Fellow Bloomberg ETF analyst Eric Balchunas noted that Moderna was likely to get the boot, with MicroStrategy allocated a 0.47% weight in the Nasdaq 100 index. 

“This would lead to inclusion of MSTR in some of the largest ETFs such as QQQ (5th largest ETF), leading to one-time fresh buying and ongoing participation in future inflows,” Bernstein analysts led by Gautam Chhugani said in a Wednesday note to clients.

Largest expected buys in Nasdaq 100 rebalancing on Dec. 23, 2024. Image: Bernstein.

Reservations on MicroStrategy’s premium to NAV and bitcoin acquisitions

MicroStrategy has added $16 billion in bitcoin — 40% of its total $40 billion position — over the past 40 days alone and currently trades at a 147% premium to its bitcoin net asset value ($103 billion enterprise value). “Many investors may have reservations on its premium to NAV valuation and its bitcoin purchase program dependent on its ability to issue equity and debt convertible at this premium,” Chhugani noted.

However, the Bernstein analysts believe this can continue for a long time. MicroStrategy has used around $15 billion of its proposed $42 billion debt and equity raise plan for bitcoin acquisitions so far and shows no signs of slowing, seemingly comfortable buying in the $95,000 to $100,000 range, the analysts said. “Further, as MicroStrategy buys more bitcoin, the valuation premium normalises, with bitcoin stock (denominator) going up,” they added. “At 18% leverage levels (convertible debt to bitcoin NAV), MSTR has the room to issue more debt, apart from tapping its equity ATM. And if bitcoin’s price remains range bound around the $100K levels, we expect MicroStrategy to maintain its trajectory of bitcoin buying.”

Following MicroStrategy’s potential inclusion in the Nasdaq 100 and QQQ, Bernstein expects more visibility and recognition beyond the ETF inflows, with the market setting its sights on S&P 500 inclusion in 2025. Joining the S&P 500 is more challenging due to the firm’s software business’ lack of profit.

However, an accounting rule change for bitcoin valuations could make the firm eligible next year, Seyffart said yesterday. “As a new mark to market, FASB goes live in 2025, MicroStrategy would be able to recognize its unrealized gains on its bitcoin position (~$41 billion market value vs. ~$25 billion cost basis), improving its S&P prospects,” the Bernstein analysts explained.

Alongside the “Trump 2.0” administration’s increased crypto focus, with the nomination of a crypto-friendly SEC Chair and appointment of an AI and Crypto Czar, Bernstein said the stock presented a reasonable entry under the current market conditions, rating MicroStrategy as outperform with a price target of $600.

MicroStrategy shares closed up 3.3% at $377.32 on Tuesday, having gained over 444% year-to-date, according to TradingView. The stock is currently up 1.7% in pre-market trading on Wednesday.

MSTR/USD price chart. Image: TradingView.

Gautam Chhugani maintains long positions in various cryptocurrencies. Bernstein or its affiliates may receive compensation for investment banking services from MicroStrategy.