As the Dow Jones Industrial Average Index recently welcomed Amazon to its prestigious ranks, drawing on its first update since 2020, the conversation naturally shifts to Nvidia. This semiconductor powerhouse, riding the AI wave and now a $2-trillion behemoth, raises the question – should Nvidia join the select league of 30 elite stocks in the Dow Jones Industrial Average Index alongside Amazon?
The Dow 30: A Historical Overview
Established in 1896, the Dow Jones Industrial Average Index holds a storied legacy as one of the oldest and most closely monitored stock market indices globally. Notably, none of the original members of the Dow remain, marking a testament to the ever-evolving nature of the index.
Significance of Recent Dow Inclusions
In its most recent shuffle in 2020, the Dow ushered in new constituents, reflecting market dynamics at play. The parallels are evident in the S&P 500’s addition of Tesla the same year, underscoring the pivotal role of benchmark index in acknowledging industry trends.
Rationale Behind Amazon’s Inclusion
Amazon’s entry into the Dow, replacing Walgreens Boots Alliance, stemmed from Walmart’s stock split impacting index weightings. This move illustrates the Dow’s adaptation to the evolving economic landscape, enhancing sector exposure.
Strategic Index Inclusions
The Dow Jones Transportation Average also embraced change, substituting JetBlue Airways with Uber to capture emerging industries like ride-sharing. This echoes the S&P 500’s integration of Uber, mirroring shifting market trends.
Importance of Dow Inclusions
Inclusion in benchmark indices like the Dow typically spells positive implications for stocks, bolstering prices through increased passive fund investments. Besides, it serves as an implicit endorsement of a company’s future prospects, as seen in Tesla’s S&P 500 inclusion.
Evaluating Nvidia’s Case
Amid the AI revolution permeating Wall Street, Nvidia’s ascension as a key player warrants consideration for Dow membership. Aligning with the rationale for Amazon and Uber’s inclusions, Nvidia’s presence could mirror the evolving economy.
Challenges for Nvidia’s Inclusion
The meteoric rise in Nvidia’s stock poses a hurdle to its Dow entry, with a potential weight exceeding 13% at its current share price. However, echoing Walmart’s path to inclusion through a stock split, Nvidia might alleviate this hurdle through a similar maneuver.
A stock split by Nvidia, a move anticipated by many retail investors, could tip the scales in its favor, akin to Walmart’s split paving the way for Amazon’s Dow entry. Excluding this AI giant from market indices risks overlooking a pivotal player in the modern economy.
