Nvidia(NASDAQ:NVDA) stock investors received some good news to start their weekend. After the market closed on Friday, the S&P Dow Jones Indices announced that the artificial intelligence (AI) chip giant would replace its fellow chipmaker. Intel(NASDAQ:INTC) in the Dow Jones Industrial Average(DJ CLUES: ^ DJI)the oldest American stock index.
Unsurprisingly, Nvidia stock was up and Intel stock was down during Friday’s after-hours trading session. Nvidia stock gained 2.9% while Intel stock lost 1.9%.
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Nvidia replaces 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 since 1999, when it was added during its glory days in the dot-com era.
Nvidia replaces Intel in the Dow index to “ensure more representative exposure to the semiconductor industry”, indicates the S&P Dow Jones Indices in its press release.
This makes sense since Nvidia’s $3.39 trillion market cap makes it the second-largest stock on a U.S. exchange, behind the leader. Apple by a small margin. Meanwhile, Intel’s market cap is $99 billion, just 1/34th of Nvidia’s. Specifically, Nvidia is much more representative of the current US technology environment than Intel, as it is the largest player in providing chips and related technologies to enable AI abilities.
As a reminder, the Dow Jones Industrial Average is a stock index of 30 stocks that aims to be representative of the American stock market, which in turn generally reflects the American economy. Thus, in the first decades of its history – it was launched in 1896 – it was mainly composed of heavy industrial and energy stocks. Over the past few decades, technology stocks have been added to the Dow as they have become increasingly dominant in the U.S. stock market.
Three of the “Big Techs” – the largest technology companies listed on American stock exchanges – AmazonApple and Microsoft — are current components of the Dow Jones.
The Dow Stock Index is price-weighted, meaning that each of its 30 components receives a weight based on its price. Thus, stock components that trade at higher prices affect the performance of the Dow more than those that trade at lower prices.
This means that extremely expensive stocks are unlikely to be included in the Dow because they would exert too much effect on the index price. So, Nvidia’s 10 for 1 stock split in June made it possible to consider its addition to the Dow Jones.
Nvidia stock closed at $135.37 during Friday’s regular trading session. Had it not carried out its stock split, the stock would be trading at around $1,353 per share. (I say « around » because the stock probably benefited slightly from the stock split.) At that price, there’s no chance it was added to the Dow.
A membership in the Dow means that mutual funds and exchange-traded funds (ETFs) designed to track the Dow will have to buy shares of Nvidia. This increased demand is expected to put upward pressure on stock prices.
The good news continues to roll in for investors in Nvidia stock. Hopefully Wednesday, November 20 will bring more positive news. That’s when Nvidia releases its quarterly results for the period ended 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 and recommends Amazon, Apple, Microsoft and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Mad Motley has a disclosure policy.
