The Dow Jones Industrial Average needs Nvidia to provide representation for the semiconductor industry after Intel’s sharp decline.
Key Points:
Nvidia will join the Dow Jones Industrial Average after its rapid rise to a market value of over $3.3 trillion.
Intel’s significant drop in value, losing more than half of its worth this year, led to the decision to replace it.
Howard Silverblatt, a senior index analyst at S&P Dow Jones Indices, noted that semiconductor companies were underrepresented in the index.
With its stock now around $23 per share, Intel no longer fits well in the Dow Jones Industrial Average.
This was the conclusion of the S&P Dow Jones committee, which decides on changes to the 30-stock index—a widely recognized measure of the U.S. economy.
On Friday, after the market closed, S&P announced that Intel would be removed and replaced by Nvidia on Nov. 8. Nvidia, now one of the world’s most valuable public companies, just trails behind Apple in terms of market capitalization.
With this change, four of the six trillion-dollar tech companies will be part of the Dow. However, Alphabet and Meta remain absent from the index, as there are no clear stocks to swap them with. Nvidia, which recently surpassed Intel as the largest chipmaker by revenue, provided a straightforward one-for-one replacement.
A key feature of the Dow is that it’s price-weighted, meaning a company’s influence is determined by its stock price, not its total market value. Intel’s struggles in artificial intelligence and its shrinking market share in the PC and data center processor sectors have caused its stock price to drop more than 50% this year, closing on Friday at $23.20.
As a result, Intel has become the least significant stock in the Dow, with a weighting of less than 0.5%. The next lowest-priced stock is Verizon at around $41. Given Intel was the only semiconductor company in the index, the sector was underrepresented relative to its importance in the economy.
“A big part of the decision is that semis weren’t being represented,” Howard Silverblatt said. “Sector representation and stock price matter.”
Nvidia’s stock price works to its advantage. While Nvidia’s market cap would account for about 18% of the index, its stock price will give it the 21st highest weighting, sitting between Chevron and 3M. Nvidia positioned itself well to join the Dow in May when it announced a 10-for-1 stock split.
Silverblatt also noted that the tech sector’s weighting in the Dow will rise slightly to about 19.5% from 18.9%. Sherwin-Williams, which will also join the index, replacing Dow Inc., will raise the materials sector’s representation from less than 1% to about 5%.
For now, companies like Alphabet and Meta will have to wait to be included. While Amazon entered the Dow in January, representing the internet sector, Alphabet’s position is complicated by its dual Class A and Class C shares. Meta’s high stock price, around $562, would make it the most influential stock in the Dow, surpassing UnitedHealth Group.
However, with tech already well-represented, there are no clear moves for adding these Silicon Valley giants in the near future.
“To add one, you have to remove another,” Silverblatt said. “It’s not going to become the Dow 31.”
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