Nvidia Joins the Dow Jones Industrial Average, Shaking Up the Index
In a significant move, S&P Global announced that Nvidia will be added to the Dow Jones Industrial Average, replacing Intel. This transition highlights the growing importance of the semiconductor industry, especially in the age of artificial intelligence.
Nvidia Takes the Lead as Intel Exits the Dow
On Friday, after the market closed, S&P Global confirmed that Nvidia (NASDAQ: NVDA) will officially join the Dow Jones Industrial Average (DJINDICES: ^DJI). Nvidia has long been recognized as the most valuable company not included in this prestigious index. Its valuation has skyrocketed to over $3 trillion, putting it in a competitive position with Apple for the title of the world’s most valuable company.
This transition comes as no surprise following Nvidia’s stock split. Nvidia will replace Intel (NASDAQ: INTC) in the Dow. Additionally, Sherwin-Williams will take the place of the chemical giant Dow. S&P Global stated the changes aim to better represent the semiconductors and materials sectors within the index.
The Dow is a price-weighted index, meaning that companies with lower share prices have less impact on it. With both Nvidia and Sherwin-Williams having higher share prices than Intel and Dow, the index will gain greater representation from these key sectors. The adjustments will go into effect before trading begins on November 8.
Image source: Getty Images.
Nvidia’s Rise: A Shift in Industry Dynamics
The change in the Dow was anticipated, given Nvidia’s status as a leading semiconductor company, especially during an era where AI plays a crucial role. In contrast, Intel, traditionally the only semiconductor stock in the index, has struggled to keep pace with the industry’s growth.
Nvidia has become the top manufacturer of powerful GPUs used in generative AI applications. Currently, it commands a market value over 30 times that of Intel.
Since 2020, Nvidia’s market cap has sharply increased, reflecting a successful adaptation to AI’s demands. Meanwhile, Intel has faced challenges, missing several opportunities and undergoing a major restructuring announced in August. Following the announcement of Nvidia’s inclusion in the Dow, its stock rose by 2.9% during after-hours trading, while Intel dipped by 1.8%.
Nvidia’s addition means it now joins three of its “Magnificent Seven” counterparts—Apple, Microsoft, and Amazon—in the exclusive group of 30 Dow components.
Next Up for the Magnificent Seven: Will Alphabet Join the Dow?
The remaining companies from the Magnificent Seven not currently in the Dow are Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL), Tesla, and Meta Platforms.
Of these, Alphabet is the largest, boasting a market cap of $2.1 trillion and a diverse portfolio ranging from Google Search to YouTube and beyond.
For Alphabet to join the Dow, it would need to replace another company, but there isn’t an immediate analogue for such a swap, unlike Nvidia with Intel.
Potential candidates for replacement include Cisco, known for networking equipment, currently valued at $55 per share with a market cap of $221.2 billion. Another option is IBM, trading at $208 per share with a market cap of $193 billion, that has shifted focus over the years to prioritize cloud and AI services.
The Timeline for Alphabet’s Possible Dow Inclusion
Changes to the Dow are not frequent and occur at the discretion of index managers. The aim is to maintain a list of companies that are economically significant and reputable.
Considering that both Cisco and IBM still have higher market caps than Intel, there may not be an urgent push to replace their positions. However, given Alphabet’s established market leadership and value, its inclusion in the Dow seems likely, though it might take years to materialize.
Is Investing in Nvidia a Smart Move?
If you’re contemplating investing $1,000 in Nvidia, it’s wise to evaluate all your options:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board. Randi Zuckerberg, former Facebook spokeswoman, is also on the board. Other members include executives from Alphabet and analysts with holdings in various leading tech companies. The Motley Fool has a disclosure policy outlining its vested interests.
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