MicroStrategy’s Inclusion in the S&P 500 'Unlikely' Despite Strong Performance

Despite MicroStrategy outperforming every stock in the S&P 500 over the past four years, market analysts are divided on whether it will join the index anytime soon.

Some believe it’s only a matter of time. According to CNBC, the median market capitalization in the S&P 500 in early September was $33.5 billion. As of September 27, MicroStrategy’s market cap was $33.6 billion, placing it in the range of other companies in the index. With 266,000 Bitcoin in its treasury, more than any other corporation worldwide, MicroStrategy has become closely associated with Bitcoin.

However, an S&P 500 listing seems unlikely in the near future, according to Seoyoung Kim, an associate professor of finance at Santa Clara University. Although MicroStrategy meets many of the criteria for inclusion, such as being traded on a major U.S. stock exchange and having a market cap above $18 billion, its lack of consistent profitability may be a hurdle.

Kim pointed out that MicroStrategy has mostly reported negative earnings, with the exception of the fourth quarter of 2024, which wasn’t enough to achieve a positive net income overall.

Joe Nardini, co-head of investment banking at B. Riley Securities, agreed, noting that while MicroStrategy has the market capitalization to qualify, its net income issues, largely driven by fluctuations in Bitcoin's value, could disqualify it. Bitcoin’s price swings can negatively impact MicroStrategy’s earnings, making it difficult for the company to meet the S&P 500’s profitability requirement.

Additionally, Russell Rhoads, a clinical associate professor at Indiana University, mentioned that the volatility of MicroStrategy’s stock, heavily influenced by Bitcoin, could be a deterrent for the S&P 500, which generally consists of more stable companies.

A larger concern could be that MicroStrategy, with its unconventional business model, doesn’t fit the traditional corporate mold of the S&P 500. As Bank of America recently noted, the index is comprised of companies with stable earnings and strong balance sheets. MicroStrategy’s volatile revenue, largely driven by Bitcoin, may not meet the criteria typically expected by the index’s selection committee.

Despite these challenges, some believe that if Bitcoin's volatility decreases and MicroStrategy's earnings stabilize, it could still have a chance at inclusion. However, even then, it would need to wait for another company to be removed from the index. While replacements happen regularly, guessing which companies will join is difficult.

Interestingly, some suggest that Coinbase, with its more consistent earnings, could have a better chance of joining the S&P 500 before MicroStrategy.

Nonetheless, many in the crypto space see MicroStrategy’s potential inclusion as a significant event for the industry. According to Rhoads, once MicroStrategy joins, anyone owning an S&P 500 index fund would indirectly hold Bitcoin.

For now, the main obstacles remain MicroStrategy’s inconsistent earnings and Bitcoin’s volatility. As regulatory frameworks evolve, the crypto industry’s growing integration with traditional finance could open more doors for companies like MicroStrategy in the future.