June 14, 2024

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Will it replace Intel in the Dow Jones Industrial Average?

Will it replace Intel in the Dow Jones Industrial Average?

shares Nvidia (Nasdaq: NVDA) It has risen since the company reported a strong first-quarter earnings report on May 22 and announced a 10-for-1 stock split.

Since then, the stock has jumped nearly 20% in less than two weeks, and its momentum appears to be continuing to rise. Stock split, which is scheduled to take effect after business hours on June 7. Shares rose about 10% after the initial bounce on those announcements.

There are a number of reasons why investors should react positively to Nvidia’s upcoming split. First, although stock splits do not change the fundamentals of the stock or the business, investors seem to believe that splits are a positive sign from management that they expect the stock price to continue to rise.

A stock split also acts as a reset for a stock’s price, effectively signaling that it has reached a certain point and is ready to rise again.

Splits also make individual stocks cheaper, making them more accessible to individual investors, which can help boost demand. There is also evidence that stock splits are associated with outperformance over the next year, which may be due to a combination of momentum in the business that led to the stock split in the first place and investor enthusiasm resulting from the split.

However, in the case of Nvidia’s upcoming split, there’s even more reason for investors to be more optimistic.

Some investors believe Nvidia could replace it Intel Corporation (NASDAQ: INTC) In the Dow Jones Industrial Average (DJI: ^DJI)fully establishing it as a blue-chip technology stock.

Stock chart is moving up

Image source: Getty Images.

Why hasn’t Nvidia entered the Dow Jones index yet?

The Dow Jones Index is a price-weighted index, meaning the degree to which each stock influences the index depends on its share price. This is an important difference from Standard & Poor’s 500 And the Nasdaq Indices, which are weighted based on market capitalization.

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If Nvidia were added to the Dow Jones at its pre-split share price, it would have a substantially higher weighting and skew the index, which is based on 30 major stocks from diverse industries and is intended to reflect the broad market.

However, the stock price should be around $110 to $120 after the split, which would put it near the average price of existing Dow companies.

Why Intel Could Be Booted From the Dow Jones

There are no strict criteria for stocks to be accepted or expelled from the Dow Jones Index, but according to… Standard & Poor’s Global, which manages the index, Dow Jones stock must be a leading company; It enjoys an excellent reputation, sustainable growth, broad interest from investors, and contributes to the balance of the sector.

At this point, it’s fair to question Intel’s ability to achieve sustainable growth because it has long been a laggard in this area. Semiconductor industry. Over the past decade, the stock has risen just 11%, trailing the Dow Jones by a wide margin, and Intel hasn’t posted a quarter with double-digit revenue growth in nearly four years even as peers like Nvidia have reported much faster growth.

The last stock removed from the Dow Jones index was… Walgreens Shoe Alliancewhich came after several quarters of weak performance and poor results, similar to what Intel witnessed.

If Intel were dropped from the Dow Jones, Nvidia would be the logical alternative – with both stocks representing the semiconductor industry. Nvidia is also now much larger than Intel, with a market cap of $2.8 trillion, compared to Intel’s $129 billion.

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What does joining the Dow Jones mean for Nvidia stock?

Admission to the Dow Jones likely won’t have a significant impact on Nvidia’s stock price. Unlike the S&P 500, the Dow Jones is not widely tracked by ETFs, meaning investors do not invest in it directly the way they do with the S&P 500.

In fact, there is only one ETF, which is… SPDR Dow Jones Industrial Average ETFprovides a way to get direct exposure to the Dow Jones Index and the Dow Jones Index only.

However, it would be a psychological win for Nvidia to be able to enter the blue-chip index. This would make sense because Nvidia is now the third most valuable company in the world – and the most valuable company not included in the Dow Jones Index because both… apple And Microsoft They are members.

It would also serve as a stamp of approval from the committee that Nvidia’s success is not viewed as a passing phenomenon or bubble.

Meanwhile, the removal may be the latest setback for Intel, but it seems well-deserved, given its poor long-term performance. At this point, there are clearly better representatives from the semiconductor industry to include in the index.

Revisions and rebalancing are rare for the Dow Jones, but it makes sense here. Don’t be surprised to see Nvidia replace Intel in the Dow Jones Industrial Average once the stock split is over, though the timing of such a decision will remain a mystery.

Should you invest $1,000 in Nvidia now?

Before you buy shares in Nvidia, consider the following:

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Jeremy Bowman He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel, long $395 January 2026 calls on Microsoft, short $405 January 2026 calls on Microsoft, and short $47 calls US May 2024 on Intel. The Motley Fool has Disclosure policy.

Nvidia stock split: Will it replace Intel in the Dow Jones Industrial Average? Originally published by The Motley Fool