Nvidia Replacing Intel - Is This the Beginning of a New Era for the Dow Jones Index?

The Dow Jones Industrial Average (DJIA) will experience a rare update, marking the 53rd time it’s changed since its start in 1896. Here’s what to know about these changes and why they matter.

What Is the Dow Jones Industrial Average?

For over 128 years, the Dow Jones Industrial Average (DJIA) has been one of the most widely recognized indicators of Wall Street’s performance and a vital reference in world indices trading. Initially, it included only 12 major industrial companies, like railroads and oil producers, that reflected the U.S. economy at the time. Today, the DJIA includes 30 major corporations across various industries, from technology to consumer goods.

This iconic index has undergone many adjustments to keep up with the evolving economy. In total, there have been 52 major changes, such as replacing companies to ensure it accurately represents the economy. Earlier this year, Amazon replaced Walgreens in February, showing the shift toward companies with more online influence. Now, we’re about to witness the 53rd change.

Nvidia Replaces Intel

The first major change involves Nvidia, a leader in artificial intelligence (AI), replacing Intel in the index. Intel has been part of the Dow since 1999, so this marks a notable exit for a longtime Dow component.

Nvidia’s inclusion became possible after its 10-for-1 stock split in June, which lowered its stock price from over $1,300 to a more manageable level for the Dow’s unique structure. The DJIA is price-weighted, meaning companies with higher share prices have more impact on the index’s overall value. Nvidia’s share price fits better in the Dow after the split.

Nvidia’s influence comes from its strong position in the AI market. Its cutting-edge graphics processing units (GPUs) power AI technology used in data centers and advanced computing. Demand for its H100 GPU and its next-generation Blackwell architecture has given the company a strong revenue boost and solid pricing power, which is critical in an industry that requires constant innovation.

However, it’s important to note that emerging tech trends, like AI, often experience rapid growth but can also be volatile. If an “AI bubble” were to burst, Nvidia and the Dow could be impacted by a sudden drop in valuation.

Intel, on the other hand, has struggled to maintain its market dominance, particularly in data center GPUs, where Nvidia has taken the lead. Although Intel still holds a strong position in the personal computer CPU market, it has lost some market share to competitors like AMD. Intel’s plans to become a leading provider in the semiconductor industry are ambitious but come with high costs, making it a long-term project. The Dow’s decision-makers opted to move forward with Nvidia, which currently aligns more closely with tech innovation trends.

Sherwin-Williams Joins as Dow Inc. Exits

The second change sees Sherwin-Williams, a major paint and coatings company, replacing Dow Inc., which focuses on materials science products. Known for brands like Valspar and Krylon, Sherwin-Williams supplies residential, commercial, and industrial clients. It’s a large player in the materials sector with steady demand for its products due to the long duration of economic growth cycles, despite fluctuations during downturns.

Materials companies like Sherwin-Williams benefit from economic expansions, which can last for several years. While demand may slow during recessions, Sherwin-Williams’ ability to serve multiple markets helps maintain its pricing power and market position over time. The company’s stability adds valuable diversity to the DJIA’s lineup.

Why Do These Changes Matter?

These changes will impact how the Dow Jones Industrial Average is calculated. The DJIA is different from indexes like the S&P 500, which is weighted by company market value. The Dow relies on stock prices rather than market cap, so the companies with higher share prices hold more sway over the index’s movement. With the exit of Intel and Dow Inc., which had some of the lowest share prices in the index, the Dow’s overall composition will be affected.

Nvidia and Sherwin-Williams bring higher share prices to the index, placing them as the 22nd and 6th most influential stocks based on price. To manage these differences, S&P Dow Jones Indices will adjust the Dow’s Divisor, which helps translate share prices into Dow points and keeps the index stable.

In just a few days, the Dow will look different, reflecting ongoing changes in the economy and showcasing companies driving technological and industrial growth.