Strategy's Q3 Profit Reinforces S&P 500 Inclusion Eligibility Amid Discretionary Review

Executive Summary

Strategy (MSTR), formerly MicroStrategy, reported its second consecutive profitable quarter in Q3 2025, primarily driven by the appreciation of Bitcoin prices. This financial performance positions the company as eligible for potential inclusion in the S&P 500 index, with the rebalancing decision scheduled for December 19. The S&P 500 committee, however, maintains discretionary control over index composition, a factor that has previously influenced outcomes for companies with significant digital asset exposure. Concurrently, Strategy has increased the dividend rate on its STRC perpetual preferred stock from 10% to 10.25%, effective October 1.

The Event in Detail

Strategy announced its Q3 2025 earnings, revealing a quarter of profitability largely attributable to its substantial Bitcoin holdings. During the third quarter, the price of Bitcoin increased from approximately $107,000 to $114,000. This appreciation contributed to an estimated $2.9 billion profit for Strategy in Q3. The company’s financial reporting utilizes fair-value accounting standards for its Bitcoin assets, directly reflecting unrealized gains in its net income.

As of June 30, 2025, Strategy maintained 597,325 Bitcoin on its balance sheet. Its Q2 2025 results had previously indicated strong financial health, with $14 billion in operating income and $10 billion in net income, also propelled by Bitcoin's valuation. These figures, alongside a market capitalization exceeding the $8.2 billion threshold, positive trailing twelve-month earnings per share (EPS), and a public float exceeding 50%, demonstrate Strategy's fulfillment of key S&P 500 inclusion criteria.

In a related financial development, Strategy increased the annual dividend rate on its Variable Rate Series A Perpetual Stretch Preferred Stock ($STRC) from 10% to 10.25%. This 25-basis-point boost, effective for monthly periods beginning October 1, resulted in a cash dividend of $0.854166667 per share payable on October 31 to stockholders of record as of October 15.

Market Implications

Strategy's potential inclusion in the S&P 500 carries significant market implications. Such an event would trigger mandatory buying by index-tracking funds, potentially injecting billions into MSTR's stock. This mechanism would indirectly broaden institutional exposure to Bitcoin for a vast range of investors through pension funds, ETFs, and other institutional portfolios. Analysts have suggested an S&P 500 approval could drive as much as $120 billion in institutional Bitcoin demand.

Historically, the S&P 500 committee has exercised its discretion, as evidenced by a prior rebalance in September 2025 where Strategy was not selected for inclusion despite meeting all quantitative criteria. At that time, companies like Robinhood Markets and Emcor Group were added. This decision highlighted a cautious institutional stance towards companies whose market capitalization is predominantly derived from cryptocurrency holdings, rather than their core operating business. However, other crypto-related firms like Coinbase and Block have previously been included, indicating a nuanced approach to digital asset exposure within the index.

Bitcoin's correlation with the S&P 500 has risen to 0.90 in 2025, suggesting its increasing role as a macroeconomic risk-on asset. An inclusion of Strategy would further intertwine digital assets with traditional equity markets, potentially legitimizing crypto as a strategic asset class.

Expert Commentary

Market observers emphasize the discretionary power of the S&P committee. As Bloomberg ETF analyst James Seyffart noted, "The index committee has full discretion to add and remove names as they see fit." Fellow Bloomberg analyst Eric Balchunas further elaborated on the committee's role, characterizing the S&P 500 as "essentially an active fund run by a secret committee." These comments underscore that while Strategy meets objective criteria, the final decision remains subjective and subject to the committee's qualitative assessment, particularly concerning its Bitcoin-heavy balance sheet.

Broader Context

Strategy's business model, which involves maintaining a large Bitcoin treasury, positions it as a de facto leveraged proxy for the cryptocurrency. This strategy contrasts with traditional corporate treasury management. The company holds the largest corporate Bitcoin treasury worldwide. If Bitcoin were to reach $119,000 by the end of Q3, Strategy's estimated quarterly net earnings could approximate $28.59 billion, potentially surpassing Nvidia's highest reported quarterly net income of $22.091 billion and rivaling Apple's records. This potential highlights how fair-value accounting for Bitcoin can significantly impact reported earnings.

Should Strategy be included in the S&P 500, it would mark a historic milestone as the first company with a primary business focus on Bitcoin treasury to enter the benchmark index. Conversely, continued exclusion, despite eligibility, could prompt investors to reassess the value of corporate crypto treasuries, potentially shifting preferences towards companies with more diversified or "real operating businesses" within the crypto sector, such as exchanges or miners. The sustained focus on Strategy's S&P 500 candidacy reflects the ongoing evolution of how traditional finance integrates digital assets.