Shares of MicroStrategy Inc. (MSTR), led by Michael Saylor, have fallen over 14% in the past five trading sessions. The decline comes amidst heightened market volatility, driven by concerns over the company’s potential inclusion in the S&P 500 and a sharp drop in Bitcoin prices.
Although MicroStrategy fulfills the S&P 500’s requirements for market capitalization and trading volume, it falls short of meeting the earnings standards. According to a report by Benchmark, cited on Investing.com, the S&P 500 requires companies to report positive earnings in their most recent quarter as well as in the preceding four quarters. MicroStrategy’s reliance on its substantial Bitcoin holdings complicates its financial reporting, as these assets are not fully accounted for in its financial statements under current guidelines.
However, there may be a turning point ahead. Benchmark analyst Mark Palmer noted that MicroStrategy is expected to adopt new Financial Accounting Standards Board (FASB) guidelines for Bitcoin accounting in the first quarter of 2025. These guidelines are projected to provide an immediate boost to the company’s earnings, potentially allowing it to meet the inclusion criteria for the S&P 500.
The potential benefits of meeting these standards are significant. Inclusion in the S&P 500 would grant MicroStrategy access to a broader investor base, including institutional investors and index funds that track the benchmark index. This could, in turn, lead to increased demand for the company’s stock.
MicroStrategy’s recent challenges have been exacerbated by Bitcoin’s price volatility. Over the past five days, Bitcoin’s price has dropped by 9.95%, landing at $93,912.90. Meanwhile, the iShares Bitcoin Trust ETF (IBIT) declined by 4.32% during the same period. MicroStrategy currently controls nearly 2.1% of the global Bitcoin supply, making its stock performance closely tied to the cryptocurrency’s value.
Despite these challenges, Benchmark has maintained a bullish outlook on the company, assigning it a “Buy” rating with a price target of $650. This valuation is based on a sum-of-the-parts analysis that takes into account the projected value of MicroStrategy’s Bitcoin holdings by 2026. The firm anticipates Bitcoin reaching $225,000 by the end of that year, which could significantly enhance MicroStrategy’s valuation.
Adding a positive note to the company’s prospects, MicroStrategy is set to be listed on the Nasdaq 100 on Monday, December 23. Unlike the S&P 500, inclusion in the Nasdaq 100 is primarily determined by market capitalization rankings as of the last trading day in November, allowing MicroStrategy to secure a spot despite its earnings challenges.
As the company navigates these hurdles, the adoption of new Bitcoin accounting standards and stabilization in cryptocurrency prices could position MicroStrategy for significant growth in the coming years. For now, however, its stock remains subject to the twin pressures of Bitcoin volatility and uncertainty surrounding its inclusion in major market indices.