Major artificial intelligence (AI) chip stocks rose nearly 3% in after-hours trading on Friday.
Nvidia (NVDA 1.99%) Stock investors got some good news to start the weekend. After the market closed on Friday, S&P Dow Jones Indices announced that the artificial intelligence (AI) chip giant will replace fellow chipmaker Intel. (INTC 7.81%) Dow Jones Industrial Average (^DJI 0.69%)the oldest U.S. stock index.
Not surprisingly, in after-hours trading on Friday, Nvidia stock rose while Intel stock fell. Nvidia stock rose 2.9%, while Intel stock fell 1.9%.
When will Nvidia join the Dow Jones Industrial Average?
Before the market opens on Friday, November 8th, Nvidia will replace Intel in the Dow Jones Industrial Average (commonly referred to as the “Dow”).
Intel has been a member of the Dow since 1999, having been added during the glory days of the dot-com era.
Why is Nvidia chosen over Intel in the Dow index?
S&P Dow Jones Indices said in a press release that NVIDIA will replace Intel in the Dow index “to provide more representative exposure to the semiconductor industry.”
This comes as no surprise since Nvidia’s market capitalization of a whopping $3.39 trillion makes it the second-largest stock traded on U.S. exchanges, just a hair behind leader Apple. . Intel, on the other hand, has a market capitalization of $99 billion, just 1/34th of Nvidia’s market capitalization. What’s more, Nvidia is far more representative of the current U.S. technology landscape than Intel, as it is the largest player supplying the chips and related technologies that enable AI capabilities.
By way of background, the Dow Jones Industrial Average is a large-cap index of 30 stocks that is intended to represent the U.S. stock market and generally reflects the U.S. economy. As such, the early decades of its history, launched in 1896, consisted primarily of heavy industry and energy stocks. In recent decades, tech stocks have become increasingly dominant in the U.S. stock market, and they continue to be added to the Dow Jones Industrial Average.
Three of the so-called “Big Tech” companies, the largest technology companies traded on U.S. stock exchanges, are currently constituents of the Dow: Amazon, Apple, and Microsoft.
How did Nvidia’s 10-for-1 stock split in June pave the way for its addition to the Dow?
The Dow Stock Index is price weighted. This means that each of its 30 components is weighted based on price. Therefore, stock components that trade at higher prices have a greater impact on the performance of the Dow than components that trade at lower prices.
What this means is that very expensive stocks are less likely to be included in the Dow because they have too much of an impact on the index price. As a result, Nvidia conducted a 10-for-1 stock split in June and was considered for addition to the Dow.
Nvidia stock closed Friday’s regular session at $135.37. Without the stock split, the stock would have traded at approximately $1,353 per share. (I say “approximately” because it likely benefited slightly from the stock split.) At this price, it’s not likely to add to the Dow.
How will being added to the Dow Jones Industrial Average benefit Nvidia and its shareholders?
Membership in the Dow index means that mutual funds and exchange-traded funds (ETFs) designed to track the Dow must buy Nvidia stock. This increased demand should put upward pressure on the stock price.
Good news keeps coming for Nvidia stock investors. We hope Wednesday, November 20th brings more positive news. This is when Nvidia reports its quarterly results for the period ending October 27th.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Beth McKenna holds a position at Nvidia. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: A January 2026 $395 long call on Microsoft, a January 2026 $405 short call on Microsoft, and a November 2024 $24 short call on Intel. The Motley Fool has a disclosure policy.
