In November, Nvidia (NVDA 1.58%) replaced Intel in the Dow Jones Industrial Average. The swap gave the value-focused index more exposure to technology and artificial intelligence (AI). Nvidia was by far the best-performing Dow component in 2024. But at the time of this writing, it is down 11% year to date, making it the worst-performing Dow stock in 2025.
Here's why a big move in the growth stock wouldn't necessarily drag down the Dow, why Nvidia is under pressure, and whether the stock is worth buying now.
Image source: Getty Images.
Understanding Dow dynamics
Nvidia is the third-largest company by market capitalization behind Microsoft and Apple -- which are also Dow components. But a further sell-off in Nvidia is unlikely to move the index by much. In fact, the Dow gained 0.7% on the day of Nvidia's plunge.
Unlike the S&P 500 and Nasdaq Composite, which are cap-weighted, the Dow is price-weighted. Meaning that companies with lower stock prices have lower weights in the index even if they are more valuable. Due to its lower stock price, Nvidia only makes up 1.7% of the Dow.
The Dow has become much more tech-focused in recent years due to the additions of Salesforce, Amazon, and Nvidia. Still, these companies, plus Microsoft, Apple, IBM, and Cisco Systems, comprise only 23% of the index.
In sum, Nvidia is large enough to affect the S&P 500 and Nasdaq Composite, but it could fall by 50% and not even move the Dow by 1%.
NASDAQ: NVDA
Key Data Points
Nvidia isn't the company it used to be
Between fiscal 2020 and 2024, revenue for Nvidia's compute and networking segment went from $3.28 billion to $47.41 billion. The investment thesis shifted from a company whose chips were mainly used for gaming, PCs, visualization, and software for internal applications, to data center sales.
Sales and operating income have grown exponentially as customers build large language models (LLMs) using Nvidia graphics processing units (GPUs). The company has continued to innovate, pouring money into research and development to build even more powerful chips.
Announced in March 2024, its Blackwell GPU delivers 4 times faster AI training and 30 times faster AI inferencing compared to Nvidia's Hopper GPU architecture, which was announced in March 2022.
The company's lead over the competition, its continued product development, and deep pockets from customers like Microsoft, Alphabet, Amazon, Meta Platforms, and Tesla have helped pole-vault Nvidia to one of the three most valuable companies in the world. And unlike some growth-driven rallies, Nvidia's results back up the stock's ascent.
NVDA Revenue (TTM) data by YCharts
There are 33 U.S. companies with over $100 billion in trailing 12-month sales. But only one company, Nvidia, has a profit margin of over 55%.
The next closest are Microsoft and Meta Platforms, which both have 36% profit margins. So Nvidia is truly in a league of its own in terms of combining sales and profitability.
Because the company is growing so quickly, Nvidia's price-to-earnings ratio of 46.7 doesn't look all that expensive. But if growth slows, the stock could look overvalued. The biggest risks to Nvidia are competition and demand. And one of those risks just got put on full display.
Nvidia shares fell 17% on Jan. 27 due to fears of lower demand for its chips. Chinese start-up DeepSeek reportedly built its own LLM powered by older Nvidia hardware for far lower cost than OpenAI's ChatGPT. If advanced AI systems can run at lower cost, it could erode Nvidia's pricing power and reduce the market for its cutting-edge chips.
However, if AI becomes cheaper and more accessible, it could increase computing demand, which could be a net positive for Nvidia even if its margins come down.
How to approach Nvidia stock now
Higher demand for GPUs sent the stock price soaring to new heights. So if investors believe demand will fall, it stands to reason the stock could also take a hit. At times like this, it can be best to zoom out and focus on the big picture.
For Nvidia, the million-dollar question is whether new AI models will continue requiring more computing power to operate or if its customers can make do with less. And if costs do come down, can the market expand enough so that Nvidia's growth story remains intact?
Nvidia's differentiating factor is that its data center GPUs are vastly superior to those made by competitors like Advanced Micro Devices. So it can charge top dollar. But if data center GPUs become more commoditized, then the company may lose some of its edge.
Given all the unknowns, the simplest way to approach Nvidia would be to include it in a basket of other AI stocks -- including other chipmakers, hyperscalers, software companies, and more.
One way is to invest in an exchange-traded fund (ETF) with exposure to top AI names, like the iShares Semiconductor ETF or the Vanguard Information Technology ETF. Then your portfolio can benefit as AI evolves without being solely dependent on Nvidia to maintain its dominance.
Alternatively, you could take a wait-and-see approach to Nvidia. The company will report fourth-quarter and full-year fiscal 2025 results on Feb. 26, during which analysts will assuredly get management's thoughts on DeepSeek and cheaper AI.
Perhaps most important of all, it's worth remembering that the greatest advantage of being an individual investor is that you don't have to get caught up in market noise and can view sell-offs within the context of your own interests, financial goals, and risk tolerance.
If you've had Nvidia on your watch list for a while, the good news is that the stock just got cheaper. But if you are still unsure about Nvidia, that's OK, too.
