Nvidia (NASDAQ: NVDA) Stock investors got some good news to start their weekend. On Friday after the stock market closed, S&P Dow Jones Indices announced that the artificial intelligence (AI) chip giant will replace fellow chipmaker Intel (NASDAQ: INTC) in the Dow Jones Industrial Average (DJINDICES: ^DJI)the oldest American stock index.
Not surprisingly, Nvidia shares rose and Intel shares fell during Friday’s after-hours trading session. Nvidia shares rose 2.9%, while Intel shares lost 1.9%.
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Nvidia will replace Intel in the Dow Jones Industrial Average (commonly referred to as “the Dow”) before the market opens on Friday, November 8.
Intel has been a member of the Dow Jones since 1999, as it was added in its heyday in the dot-com era.
Nvidia replaces Intel in the Dow index to “ensure more representative exposure to the semiconductor industry,” the S&P Dow Jones Indices said in its press release.
This makes sense, as Nvidia’s whopping $3.39 trillion market cap makes it the second-largest stock trading on a U.S. exchange, leaving it the leader. Apple with a small margin. Meanwhile, Intel’s market cap is $99 billion, just 1/34th that of Nvidia. In fact, Nvidia is much more representative than Intel of the current US technology environment, as it is the largest player in providing chips and related technology to enable AI capabilities.
As background, the Dow Jones Industrial Average is a 30-major stock index that aims to be representative of the US stock market, which in turn is generally reflective of the US economy. So in the early decades of its history – it was launched in 1896 – it was mainly heavy industrial and energy stocks. In recent decades, technology stocks have been added to the Dow Jones as they have become increasingly dominant in the US stock market.
Three of the so-called ‘Big Techs’ – the largest technology companies trading on US stock exchanges – AmazonApple, and Microsoft — are current components of the Dow Jones.
The Dow stock index is price-weighted, meaning each of the 30 components is weighted based on price. Thus, stock components that trade at higher prices have more influence on the performance of the Dow Jones than components that trade at lower prices.
What this means is that extremely expensive stocks have little chance of being included in the Dow Jones because they would exert too great an effect on the index price. Nvidia’s 10-for-1 stock split in June thus made it possible to consider its addition to the Dow Jones.
Nvidia stock closed at $135.37 during Friday’s regular trading session. If the company had not implemented the stock split, it would be trading at a price of approximately $1,353 per share. (I say “about” because the stock likely benefited somewhat from the stock split.) At this price, there’s no way it would have added to the Dow Jones.
A membership in the Dow index means that mutual funds and exchange-traded funds (ETFs) designed to track the Dow Jones will have to buy shares of Nvidia. This increased demand should put upward pressure on the stock price.
The good news continues to roll in for investors in Nvidia stock. Hopefully Wednesday November 20 will bring more positive news. This is when Nvidia releases its quarterly results for the period ending October 27.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Beth McKenna has positions at Nvidia. The Motley Fool holds positions in and recommends Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls at Microsoft, short January 2026 $405 calls at Microsoft, and short November 2024 $24 calls at Intel. The Motley Fool has a disclosure policy.
Nvidia Stock Joins the Dow Jones Industrial Average Stock Index and Intel Gets Booted was originally published by The Motley Fool
