Check your watch. Did you notice? Times are changing—literally and figuratively, especially in the Dow. Last Friday, news broke that Nvidia ($NVDA) will replace Intel in the Dow Jones Industrial Average. Before the bell on Thursday, November 8th, Nvidia will officially join the ranks of the Dow 30 behemoths.
The Dow ($DJ30) is up almost 16% year-to-date. (source: eToro)
Nvidia replaces Intel: a surprise, or not?
What a surprise! Well, maybe not entirely. Rumours have been swirling about a possible inclusion ever since Nvidia’s 10-for-1 stock split back in June. Nvidia will now replace Intel as the Dow’s sole chipmaker, though it won’t be the only AI-related stock in the index. Microsoft ($MSFT), Amazon ($AMZN), and Apple ($AAPL) are already part of the elite 30. Still, this change is relatively rare—over the Dow’s 128-year history, its components have shifted only 58 times. Being part of the Dow is a prestigious distinction.
Why Nvidia won’t dominate the index
But despite what you may think, Nvidia won’t dominate the Dow’s weight. Why? You see, the Dow works differently than its two bigger brothers, the S&P 500 ($SPX500) and the NASDAQ 100 ($NSDQ100). It weights each company by share price rather than market cap. This means that even though Nvidia recently overtook Apple as the world’s most valuable company, the top spot in the Dow belongs to UnitedHealth ($UNH), with a share price north of $600 at the time of writing.
Nvidia’s pre-split price of $1,000 would have been too high for the index; at its current price, around $140, Nvidia will carry roughly the same weight as 3M ($MMM). However, due to Nvidia’s volatility, it will rank as the eighth-largest influence on the index’s daily movements.
Meanwhile, Intel’s ($INTC) exit is no surprise, given its lagging business performance compared to Nvidia. With a share price of around $24, Intel already held the smallest weight in the Dow.
Impact on Nvidia’s stock performance
What impact might this have on Nvidia? Perhaps less than you’d think. While the Dow is famous, it’s less popular among investors than other indices. The largest S&P 500 ETF $SPY manages over $590 billion, while its Dow counterpart, the $DIA, has less than $39 billion in assets under management. So while Dow inclusion boosts Nvidia’s reputation, it’s unlikely to impact the stock’s performance significantly.
