We recently compiled a list of the 10 Best Performing NASDAQ Stocks in 2024. In this article, we are going to take a look at where MicroStrategy Inc. (NASDAQ:MSTR) stands against the other great performing NASDAQ stocks.

Market Expectations for the Year-End

Fed's recent cut has resulted in significant outperformance in the tech sector, signaling a positive sentiment among investors. Tech stocks are thriving in this lower interest rate environment, which has contributed to a broader market rally. The strength of small-cap stocks and cyclical sectors was noticeable even before the reduction, suggesting that market confidence was building. Analysts expect ongoing growth driven by advancements in AI, which continues to be a key theme influencing investor behavior.

The occurrence of rate cuts while markets are at record highs raises important questions about potential volatility. Historically, markets have shown resilience and often continue to rise even when rate cuts occur near market peaks. This suggests that much of the current optimism may already be reflected in stock prices. The recent rate cut is generally viewed as a preventive measure rather than a direct response to economic weakness, which could further enhance consumer confidence and spending.

Towards the end of September, RaeAnn Mitrione, Investment Management Partner at Callan Family Office, appeared in an interview and highlighted significant market developments following the Fed’s unexpectedly larger-than-anticipated rate cut. We covered this in detail in our article on the 7 Cheap Technology Stocks To Buy Right Now, here's a short excerpt from it:

“...Mitrione emphasized that the market is reacting favorably to lower interest rates, particularly benefiting the tech sector... Pointing at a chart, Mitrione remarked that it is unusual to see rate cuts while markets are at record highs, raising questions about potential volatility ahead. Historically, even when rate cuts occur near market peaks, stocks often continue to rise. Much of this positive sentiment has been priced in due to prior indications of the rate cut. She explained that the economy remains strong, and the rate cut serves as a preventive measure rather than a reaction to economic weakness. This supportive environment could enhance consumer confidence and spending, further improving market performance.”

On September 28, DataTrek Research co-founder, Nick Colas, joined an interview on CNBC to discuss the trading day and highlight that the tech rally will have to wait until year-end. As September ended, the S&P 500 saw a remarkable increase of 20% year-to-date. In light of this performance, market participants began revisiting the post-Fed rate cut playbook following the initial easing. Nick Colas noted that one of the most encouraging aspects of September is that the market has not experienced a decline, which is typically expected during this month known for its volatility. Instead, the S&P had risen by 1.6% so far in September, demonstrating resilience despite some initial choppiness, which is particularly noteworthy given September's historical reputation for turbulence.

As Colas noted, on the macroeconomic front, positive indicators are emerging. The Atlanta Fed's GDPNow model has revised its Q3 growth estimate upward to 3.1%, signaling that the economy is performing well. Additionally, gasoline demand has increased by 6% year-over-year, reflecting strong consumer activity. Initial jobless claims reported recently also show a solid performance, falling below the three-year average. These data points support the mid-cycle playbook employed by DataTrek, suggesting that the economy is continuing to progress without any significant cracks or fissures in its foundation.

Despite these positive trends, questions remain about whether the market can sustain its momentum without new positive catalysts. Colas pointed out that historically, price-to-earnings multiples and stock prices tend to rise together as long as there are no major negative catalysts to disrupt the economic recovery. This correlation indicates that investor confidence remains intact and is likely to persist through the remainder of the year. Furthermore, as the market approaches traditionally strong months following elections, there are expectations for a potential old Santa Claus rally in December.

However, with the volatility index elevated at around 17 and geopolitical tensions looming, especially as elections approach, investors are likely to remain cautious. Over the past two years, the NASDAQ 100 has surged approximately 67%, marking a significant recovery since its lows in October two years ago. This performance is substantially above the historical average return of around 25%. Colas emphasized that while such returns are impressive, they do not yet indicate speculative excess; historically, a doubling of the NASDAQ over two years would signal potential trouble for investors.

Looking back further, Colas noted that since peaking before the bear market in November 2021, the NASDAQ 100 has only risen about 20% over three years. This suggests that there may still be room for growth compared to prior bubbles when returns were much more pronounced within shorter time frames.

The ongoing rotation away from technology stocks has been observed recently, with cyclical sectors and financials performing well. Colas believes this trend may continue for now, with a potential resurgence in tech stocks expected closer to November and December as year-end approaches. Investors appear to be favoring cyclical sectors at present, which offer more immediate upside opportunities.

While there are challenges ahead, the current economic indicators suggest a robust environment for continued growth in equities as long as investor confidence remains high and no major negative catalysts emerge to derail progress. Despite a recent rotation away from tech stocks, the market remains resilient, with the potential for a tech resurgence as we approach year-end, setting the stage for a bullish outlook for both tech and the NASDAQ in the coming months.

When optimism about economic conditions or technological advancements rises, tech stocks typically perform well, boosting the NASDAQ.

Methodology

We used stock screeners to look for companies listed on NASDAQ that were trading over $10 billion. We then selected the top 10 NASDAQ stocks with the best year-to-date performance and that were also the most popular among elite hedge funds. The stocks are ranked in ascending order of their year-to-date performance.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A software engineer wearing a headset, collaborating with a remote team on a project.

MicroStrategy Inc. (NASDAQ:MSTR)

Year-to-Date Performance as of October 2: 157.58%

Number of Hedge Fund Holders: 26

MicroStrategy Inc. (NASDAQ:MSTR) is a software company that specializes in enterprise analytics and business intelligence solutions. MicroStrategy ONE, its flagship product, empowers non-technical users to easily access valuable insights for informed decision-making. MicroStrategy Cloud for Government provides essential threat-monitoring services tailored to meet the complex technical and regulatory needs of government agencies and financial institutions.

As of August this year, this company remains the world's largest corporate holder of Bitcoin, owning 226,500 bitcoins with a total market value of $15 billion. Bitcoin holdings increased by 13.3% and 5.6% in the first and second quarters of 2024, respectively. While Bitcoin acquisitions have generated substantial returns, they have also contributed to a significant increase in net debt, rising from $531 million to $3.8 billion. Year-to-date, the price of Bitcoin has risen significantly, driven by the approval of Spot Bitcoin Exchange Traded Products (ETPs), attracting substantial institutional interest.

The company underperformed market expectations in Q2 2024, with a 7.44% year-over-year decline in revenue and a loss per share of $0.57. During this quarter, the company continued its transition to cloud offerings, resulting in subscription services revenue of $24 million, a 21% year-over-year increase driven by cloud migrations and new customers.

Its strategic moves, including the launch of Auto Express, the availability of MicroStrategy ONE on Google Cloud Marketplace, and partnerships with Azure and AWS, demonstrate its commitment to leveraging AI for growth. These initiatives solidify the company's position as a leader in the AI industry.

Artisan Small Cap Fund stated the following regarding MicroStrategy Incorporated (NASDAQ:MSTR) in its Q2 2024 investor letter:

“Regarding MicroStrategy Incorporated (NASDAQ:MSTR), our decision to avoid this company comes down to a lack of conviction in its franchise characteristics. The stock has worked this year due to a rebound in the price of bitcoin. Since 2020, MicroStrategy has been focused on converting its cash and cash equivalent holdings, as well as issuing debt, to fund the purchase of bitcoin, which now makes up most of the company’s value.”

Overall MSTR ranks 4th on our list of the best performing NASDAQ stocks to buy. While we acknowledge the potential of MSTR as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MSTR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.