It was bound to happen at some point.
On Friday after the close of trading, S&P Global announced that Nvidia (NVDA 0.64%) would finally join the Dow Jones Industrial Average (^DJI 0.29%). The AI chip juggernaut has been the most valuable company that's not included in the blue-chip index for most of this year, and with its valuation hovering north of $3 trillion, it's now challenging Apple for the title of most valuable company in the world.
As seemed likely after Nvidia's stock split, Nvidia will be replacing Intel (INTC +1.16%) in the Dow. S&P Global, which manages the Dow Jones, also said that Sherwin-Williams will replace chemical giant Dow on the vaunted index. S&P Global said the changes were "initiated to ensure a more representative exposure to the semiconductors industry and the materials sector respectively."
The Dow Jones manager also noted that the index is price-weighted, so lower-priced stocks have less of an impact on the index, and it observed that Dow is the smallest company on the index by market cap.
Both Nvidia and Sherwin-Williams have share prices that are significantly higher than Intel and Dow, respectively, so the move will increase the index's exposure to both semiconductors and materials sectors. The changes will be implemented before the opening of trading on Nov. 8.
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Nvidia's in, and Intel's out
Nvidia's replacing Intel on the Dow has been a long time coming. Intel has been the only pure-play semiconductor stock on the Dow, but the industry has taken on increasing importance in the AI era, and nearly every chip stock has soared -- with the notable exception of Intel.
Nvidia, which is the leading maker of the powerful data center GPUs that are used to run generative AI applications, is now worth more than 30 times as much as Intel.
Nvidia has been more valuable than Intel since 2020, and their market caps have gone in opposite directions since then. Nvidia's profits have skyrocketed thanks to the AI boom kicked off by ChatGPT, while Intel has missed several opportunities and announced a massive restructuring in August. Nvidia rose 2.9% in after-hours trading on the news of its pending DJIA inclusion, while Intel fell 1.8%.
The AI chip giant now joins three of its "Magnificent Seven" peers -- Apple, Microsoft, and Amazon -- among the 30 Dow Jones components.
Which Magnificent 7 company will be the next to join the Dow?
The three Magnificent Seven companies left that aren't in the Dow and Alphabet (GOOG 1.11%) (GOOGL 1.12%), Tesla, and Meta Platforms.
Of those companies, Alphabet is the largest, with a market cap of $2.1 trillion, and probably the most diversified, with businesses that extend from Google Search to YouTube to cloud infrastructure to its Waymo autonomous vehicle subsidiary.
In order for Alphabet to join the Dow, it would have to replace another company, but there's no clear parallel swap for Alphabet the way there was with Nvidia and Intel.
There is another legacy tech company in the Dow that arguably deserves to be replaced by a current leader, and that's Cisco, which is best known for its networking equipment. It's one of the lowest-priced Dow Jones stocks with a share price of $55, and it has a market cap of $221.2 billion. A second option would be IBM, another legacy tech company that has slimmed down over the years after spinning off its IT services unit (now called Kyndryl) to focus on the cloud and AI services. IBM currently trades at a share price of $208 and has a market cap of $193 billion.
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Will Alphabet join the Dow?
There is no set schedule when it comes to making changes to the Dow Jones Industrial Average's makeup, but those removals and inclusions don't happen frequently. Changes are made at the discretion of the index's managers, whose goal is to keep it populated with economically important companies that have excellent reputations.
Cisco and IBM both still have larger market caps than Intel, so there may not be the same urgency to remove either of them from the index in favor of Alphabet. However, Alphabet is now a well-established market leader, and it has been one of the most valuable stocks on the market for at least a decade.
The Google parent should eventually gain admission to the Dow Jones Industrial Average, though it could take years for that to happen.
