Strategy’s path to S&P 500 inclusion
Introduction
Strategy (formerly known as MicroStrategy) has become a focal point in financial markets due to its unique position as a publicly traded company with significant Bitcoin holdings. With a strong performance history and growing market capitalization, Strategy is now being considered for inclusion in the S&P 500 index. This article examines the criteria for S&P 500 inclusion, the hurdles Strategy must overcome, and the potential impact of its inclusion on stock price and capital raising opportunities.
Criteria for S&P 500 inclusion
The S&P 500 index is composed of the 500 leading publicly traded companies in the United States. To qualify for inclusion, a company must meet specific criteria, including:
- Being a U.S. company
- Having a market capitalization of at least $18.3 billion
- Meeting liquidity requirements
- Demonstrating positive earnings over the most recent four quarters
- Being listed on the NYSE, Nasdaq, or Cboe
Strategy currently meets all these criteria except for one: achieving positive net income over the last four quarters.
Financial performance and new accounting standards
One major factor influencing Strategy’s eligibility is the recent change in Financial Accounting Standards Board (FASB) rules regarding digital assets. Under the new accounting standard, companies must now mark their Bitcoin holdings to fair market value, recognizing both gains and losses in real-time. Previously, Strategy had to record impairments when Bitcoin prices dropped but could not reflect gains unless the assets were sold.
This change is critical because Strategy’s Bitcoin holdings 499.096 significantly impact its financials. In prior quarters, the company recorded large impairment losses due to Bitcoin’s fluctuating value. However, with Bitcoin trading at higher levels now, currently displayed at Loading… , the company has an opportunity to report a net income gain in Q1 2025.
The threshold for Q1 2025 earnings
To qualify for S&P 500 inclusion, Strategy’s Q1 2025 earnings must be strong enough to offset past quarterly losses. Analysts estimate that Strategy requires approximately $1.113 billion in Q1 net income to meet the positive trailing 12-month earnings requirement. Given its Bitcoin holdings and the current market price of Bitcoin, achieving this milestone is plausible if Bitcoin maintains or increases its value through the end of Q1.
Potential impact of S&P 500 inclusion
If Strategy is included in the S&P 500, the effects on its stock price and capital-raising ability could be substantial:
Increased demand from index funds
S&P 500 inclusion would require index-tracking funds, mutual funds, and ETFs to purchase Strategy shares. This influx of institutional demand would provide upward pressure on the stock price and increase liquidity.
Validation of Bitcoin treasury strategy
Inclusion in the S&P 500 would serve as validation for Strategy’s Bitcoin-centric treasury approach. This would further solidify its position as the leading institutional gateway to Bitcoin exposure through equity markets.
Enhanced capital-raising potential
A place in the S&P 500 would also make Strategy a more attractive option for institutional investors, allowing the company to raise capital at favorable terms. This could lead to additional Bitcoin acquisitions, strengthening its position as the largest corporate holder of Bitcoin.
Conclusion
Strategy is on the verge of achieving S&P 500 inclusion, with only one remaining financial hurdle to clear. The new FASB accounting rules provide a favorable environment for meeting the earnings requirement, provided Bitcoin maintains its current valuation or rises. If included, Strategy could experience increased institutional investment, higher stock prices, and expanded capital-raising opportunities. The coming months will be critical in determining whether Strategy secures its place in the prestigious index.